CENVAT credit after Rule 12B rescission upheld, but bogus invoice credit remained recoverable with interest and penalty.

CENVAT credit was held to remain available after rescission of Rule 12B where the assessee otherwise satisfied the statutory conditions and Rule 4(5)(a) permitted credit on inputs sent for job work. The addendum to the show-cause notice was treated as a valid supplement to the original fraud-based demand and not a fresh, independent notice. Credit taken on invoices of non-existent or bogus suppliers was held inadmissible because the recipient failed to verify supplier identity and address as required by Rule 9(3); the fraudulent credit was recoverable with interest and penalty. Penalty on a supplier found not proved non-existent was set aside, and the penalty on an individual noticee was reduced.

---

---

Issues: (i) Whether CENVAT credit remained available after rescission of Rule 12B of the Central Excise Rules, 2002. (ii) Whether the addendum issued to the show-cause notice was valid in law. (iii) Whether credit taken on invoices of non-existent or bogus suppliers was inadmissible and recoverable with interest and penalty. (iv) Whether the penalties imposed on the noticees were sustainable.

Issue (i): Whether CENVAT credit remained available after rescission of Rule 12B of the Central Excise Rules, 2002.

Analysis: The dispute turned on whether the assessees lost their entitlement to credit once Rule 12B ceased to operate. The Tribunal held that the assessees were engaged in manufacture in the statutory sense and that Rule 4(5)(a) of the CENVAT Credit Rules, 2004 permitted credit on inputs sent for job work. It also relied on the settled position that availability of credit does not depend merely on the continuance of Rule 12B registration, and that the process undertaken for export-oriented textile activity could still support credit entitlement.

Conclusion: The assessees were held entitled to CENVAT credit even after rescission of Rule 12B.

Issue (ii): Whether the addendum issued to the show-cause notice was valid in law.

Analysis: The addendum did not introduce a wholly independent demand. It supplemented the original notice by elaborating the basis on which part of the credit was alleged to be inadmissible, namely fraud and use of bogus invoices. The Tribunal treated both documents as part of the same controversy concerning admissibility of CENVAT credit and found no legal infirmity in issuing the addendum within the extended limitation period in a case involving fraud.

Conclusion: The addendum was held to be valid in law.

Issue (iii): Whether credit taken on invoices of non-existent or bogus suppliers was inadmissible and recoverable with interest and penalty.

Analysis: Rule 9(3) of the CENVAT Credit Rules, 2004 required the recipient to take reasonable steps and satisfy itself about the identity and address of the supplier. On the evidence of non-existent suppliers, doubtful supplies, third-party encashment of cheques, and findings already recorded against certain suppliers, the Tribunal held that the assessees had failed to discharge that obligation. It found that the disputed credit had been taken fraudulently on bogus invoices and that the amount so availed was liable to be reversed with interest and penalty.

Conclusion: Credit of Rs. 1,21,61,218 was held inadmissible and recoverable with applicable interest and penalty.

Issue (iv): Whether the penalties imposed on the noticees were sustainable.

Analysis: The Tribunal found that the supplier-appellant, Shree Nathji Textiles, was not proved to be non-existent and that the return of goods indicated actual supply, so penalty on that appellant was not warranted. As regards Shri Prakash Jokhani, the Tribunal considered the relative role and cooperation in investigation and found the original penalty excessive, warranting reduction. The departmental appeal seeking a higher penalty did not survive once the substantive findings were recorded.

Conclusion: Penalty on Shree Nathji Textiles was set aside and the penalty on Shri Prakash Jokhani was reduced.

Final Conclusion: The order granted partial relief to the assessees by sustaining their eligibility to credit after rescission of Rule 12B and by setting aside or reducing certain penalties, while also upholding recovery of credit found to have been fraudulently taken on bogus invoices.

Ratio Decidendi: CENVAT credit could continue after rescission of Rule 12B where the assessee otherwise satisfied the statutory conditions, but credit taken on bogus or non-existent supplier invoices was inadmissible because the recipient must take reasonable steps to verify the supplier's identity and address.

---