Modvat credit and extended limitation depend on the buyer's own misconduct, not the supplier's fraudulent invoices alone.

Modvat credit could not be denied to a buyer merely because the supplier had wrongly availed credit on fake invoices, where receipt of the goods was not disproved and the buyer's invoices showed duty-paying particulars. The buyer's own fraud, suppression, collusion, or wilful misstatement must be established before credit can be disallowed on that basis. The extended limitation under Rule 57-I applies only where the noticee himself has taken credit through such conduct or intent to evade duty; absent evidence of the buyer's active involvement, the longer period cannot be invoked.

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Issues: (i) Whether Modvat credit could be denied to the buyers merely because the supplier had availed credit on fake and bogus invoices and utilized it for duty payment on the goods cleared to the buyers. (ii) Whether the extended period of limitation under Rule 57-I could be invoked against the buyers when no fraud, suppression, collusion, or wilful misstatement by them was established.

Issue (i): Whether Modvat credit could be denied to the buyers merely because the supplier had availed credit on fake and bogus invoices and utilized it for duty payment on the goods cleared to the buyers.

Analysis: The receipt of goods by the buyers was not established to be false, and the invoices carried duty-paying particulars. The finding that the buyers had received material was not displaced by the Revenue. Since the buyers purchased dutiable goods under invoices showing duty particulars, the supplier's wrongful availment of credit could not, by itself, nullify the buyers' credit when no active involvement of the buyers in the supplier's fraud was shown.

Conclusion: Modvat credit could not be disallowed to the buyers on the basis of the supplier's fraud alone, and the demand of recovery against them was not sustainable.

Issue (ii): Whether the extended period of limitation under Rule 57-I could be invoked against the buyers when no fraud, suppression, collusion, or wilful misstatement by them was established.

Analysis: Rule 57-I(1)(ii) permits the longer limitation only where the person against whom notice is issued has himself taken credit by reason of fraud, wilful misstatement, collusion, suppression of facts, or contravention with intent to evade duty. The record contained a specific finding that no evidence showed active involvement of the buyers in the supplier's fraud, so the statutory precondition for invoking the extended period was absent.

Conclusion: The extended period of limitation could not be invoked against the buyers.

Final Conclusion: The disallowance of Modvat credit and the consequential recovery were set aside, and the appeals succeeded.

Ratio Decidendi: Modvat credit cannot be denied to a buyer merely because the supplier procured credit through fake invoices, unless the buyer's own fraud, suppression, collusion, or wilful misstatement is established; the extended limitation under Rule 57-I applies only to such conduct by the noticee himself.

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