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Issues: (i) Whether Cenvat credit on capital goods could be denied to the recipient merely because the supplier was later suspected of having inadequate infrastructure or of not manufacturing the goods described in its invoices, when the recipient had received the goods, paid through banking channels, and entered them in statutory records. (ii) Whether the demand was barred by limitation and the extended period could be invoked on the facts of the case.
Issue (i): Whether Cenvat credit on capital goods could be denied to the recipient merely because the supplier was later suspected of having inadequate infrastructure or of not manufacturing the goods described in its invoices, when the recipient had received the goods, paid through banking channels, and entered them in statutory records.
Analysis: The decisive fact was that receipt of the capital goods by the recipient stood accepted in the adjudication order and was not displaced by any contrary evidence. The department's case rested largely on enquiries concerning the supplier's premises, transporters, and a later chartered engineer's report, but those materials did not establish that the recipient had obtained the goods from another source or that the recipient's records were false. The burden to prove that the goods came from some other source remained on the department. The authority also held that the recipient was entitled to rely on invoices issued by a registered supplier, on payments made through banking channels, and on the statutory and financial records showing receipt and installation of the machinery. Findings travelling beyond the show cause notice on the supplier's status were not sustainable.
Conclusion: The denial of Cenvat credit was not sustainable and the issue was decided in favour of the assessee.
Issue (ii): Whether the demand was barred by limitation and the extended period could be invoked on the facts of the case.
Analysis: The show cause notice was issued after the normal limitation period for a transaction period ending in early 2007. The authority found no material showing suppression, wilful misstatement, or fraud on the part of the recipient. Since the recipient had received the goods under duty-paid invoices from a registered supplier and the department had not shown that the transaction was a sham as against the recipient, invocation of the extended period was not justified.
Conclusion: The demand was time-barred and the invocation of the extended period failed.
Final Conclusion: The order-in-original could not be sustained either on merits or on limitation, and the assessee was entitled to relief.
Ratio Decidendi: Where the recipient of duty-paid goods has received and accounted for the goods under invoices issued by a registered supplier, the department must positively prove a contrary source or fraudulent conduct before denying Cenvat credit or invoking the extended period of limitation.
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