CENVAT credit on duty-paid inputs cannot be denied by reopening the supplier's tax liability at the recipient's end.

CENVAT credit cannot be denied to a recipient merely because the supplier is later said not to have been liable to pay duty, where the inputs were received under invoices showing duty payment. Under Rule 3 of the CENVAT Credit Rules, 2004, the relevant distinction is between duty paid and duty payable, and the recipient is not required to re-examine the supplier's liability or reopen the supplier's classification. A denial based only on a jurisdictional letter, without cogent evidence of exemption applicability or the manufacturing process, is insufficient, especially where credit is allowed for similarly placed suppliers. On that material, the denial of credit was unsustainable.

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Issues: Whether CENVAT credit could be denied to the recipient on the ground that the supplier was not liable to pay duty on the inputs, and whether the Revenue had discharged its burden to show that the goods supplied by one supplier were exempted.

Analysis: The input goods were received under invoices showing duty payment, and the governing scheme under Rule 3 of the CENVAT Credit Rules, 2004 permits credit of duty paid on inputs. The distinction between duty paid and duty payable is material, and the recipient is not required to re-assess the supplier's liability. The classification adopted by the supplier also cannot be reopened at the recipient's end. The finding that the relevant supplier's goods were exempted rested only on a jurisdictional letter, without cogent evidence of the manufacturing process or of actual exemption applicability. The selective denial of credit to one supplier while allowing it for other similarly placed suppliers was also unsupported by reliable material.

Conclusion: CENVAT credit could not be denied merely because the supplier was said not to be liable to pay duty, and the impugned denial of credit was unsustainable.

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