Cenvat credit on valid duty documents cannot be denied for supplier chain irregularities absent reassessment.

Cenvat credit is admissible when supported by valid duty paying documents, and the buyer of inputs is not required to verify whether the supplier's supplier correctly paid duty. Any reduction or denial of credit must flow from a consequential finding in proceedings against the supplier showing that duty was not correctly paid. Where the original assessment of the inputs is not varied and the duty documents themselves are undisputed, an internal irregularity in the supplier chain does not justify denial of credit. On that basis, the demand, interest, and penalty could not be sustained.

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Issues: Whether the assessee was entitled to avail Cenvat credit on the strength of duty paying documents where the duty paid by the supplier's supplier was alleged to be excessive or irregular.

Analysis: The credit admissibility was tested on the basis of the duty actually reflected in the duty paying documents and the settled principle that the buyer of inputs is not required to ensure that the supplier has correctly paid duty. A variation in credit can arise only as a consequential result of a finding in proceedings against the supplier establishing that duty was not correctly paid. In the absence of any variation in the original assessment of the inputs, and where the duty paying documents were not disputed, the credit taken by the assessee could not be denied merely because of an internal irregularity in the supplier chain.

Conclusion: The assessee was entitled to the Cenvat credit taken on the strength of the duty paying documents, and the demand, interest, and penalty could not be sustained.

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