Cenvat credit on capital goods cannot be denied merely on supplier-side doubts without proof against the recipient.

Cenvat credit on capital goods could not be denied where the recipient proved receipt through duty-paid invoices, banking payments and installation in its factory. Supplier-side doubts about capacity, transporter statements or alleged bogus transactions were insufficient without proof that the goods came from another source or that the recipient's records were false. The extended period of limitation was also unavailable because the recipient had taken credit on registered, duty-paid invoices and no suppression or wilful misstatement was established against it. On both merits and limitation, the demand and penalty failed, and consequential relief followed.

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Issues: (i) Whether Cenvat credit on capital goods could be denied to the recipient on the allegation that the supplier's transactions were bogus and the goods were not manufactured by the supplier; (ii) whether the demand was sustainable by invoking the extended period of limitation.

Issue (i): Whether Cenvat credit on capital goods could be denied to the recipient on the allegation that the supplier's transactions were bogus and the goods were not manufactured by the supplier.

Analysis: The credit dispute turned on whether the recipient had actually received the capital goods and whether the department had proved receipt from some alternative source. The recipient's records showed purchase on invoices, payment through banking channels and installation of the capital goods in its factory. The adjudicating authority itself had recorded that the capital goods were received by the recipient, and that finding was not assailed. The department's case rested largely on enquiries into the supplier's capacity, transporter statements and a chartered engineer's report, but those materials did not establish that the recipient had procured the goods from elsewhere or that the recipient's statutory records were false. The authority could not sustain denial of credit on findings going beyond the show cause notice, and supplier-side irregularities by themselves did not displace the recipient's proof of receipt and bona fides.

Conclusion: Cenvat credit could not be denied; the issue was decided in favour of the assessee.

Issue (ii): Whether the demand was sustainable by invoking the extended period of limitation.

Analysis: The show cause notice covered a period when the supplier was registered and the recipient had taken credit on duty-paid invoices. In the absence of proof that the recipient had knowingly taken credit on non-genuine documents or that any suppression or wilful misstatement was attributable to it, invocation of the extended period was not justified. The department failed to establish facts necessary to sustain the enlarged limitation period against a bona fide recipient.

Conclusion: The extended period of limitation was not available; the issue was decided in favour of the assessee.

Final Conclusion: The demand and penalty could not be sustained either on merits or on limitation, and the recipient was entitled to the consequential relief available in law.

Ratio Decidendi: Where the recipient of capital goods proves receipt on the basis of duty-paid invoices, banking payments and installation, Cenvat credit cannot be denied merely on doubts about the supplier's capacity or other supplier-side irregularities unless the department proves receipt from another source or establishes grounds for extended limitation against the recipient.

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