Fraudulent availment of CENVAT Credit on input services: demand for improperly claimed credit reinstated due to no payment evidence.

Fraudulent availment of CENVAT credit on input services is addressed, focusing on absence of payment evidence and existence of fictitious vendors; legal reasoning stresses that CENVAT credit is a conditional statutory concession requiring strict compliance and proof of payment, and that fraud vitiates transactions, rendering credits void. Consequence: demand for improperly availed credit (Rs. 20,07,497) was reinstated and liability sustained due to lack of tax payment records and cogent evidence of receipt of services, with reliance on precedent upholding denial of fraudulently claimed credits.

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Issues: (i) Whether the demand of Rs. 20,07,497/- relating to CENVAT credit for the period 01.04.2006 to 30.09.2006 is time-barred or is recoverable from the respondent under the provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004.

Analysis: The material shows that input service invoices were issued by entities established by investigations to be fictitious suppliers; the respondent did not produce evidence of receipt of services or payment of service tax as required by Rule 4(7) and the burden under Rule 9(6) to prove admissibility of CENVAT credit was not discharged. The respondent provided both exempt and taxable services without maintaining segregated records as required by Rule 6(3), engaging the limitations on utilization of credit. The respondent also recovered service tax from clients but failed to deposit the same to the Government, bringing Section 66, Section 68, Section 70 and Section 73A of the Finance Act, 1994 into play. Where credit is fraudulently availed or supported by invoices from non-existent firms and tax collected has not been deposited, recovery is permissible under Section 73(1) read with Section 73A(1) and Rule 14 of the Cenvat Credit Rules notwithstanding limitation, consistent with the principle that fraud removes limitation defenses.

Conclusion: The demand of Rs. 20,07,497/- for the period 01.04.2006 to 30.09.2006 is not time-barred and is recoverable; conclusion is in favour of the Revenue.

Final Conclusion: The appellate order that set aside the demand for Rs. 20,07,497/- is set aside and the Department's appeal is allowed, confirming recoverability of the specified demand under the cited statutory provisions.

Ratio Decidendi: Where CENVAT credit is supported by invoices from fictitious suppliers and the recipient fails to prove receipt of services or payment of service tax, such credit is inadmissible and amounts recovered or sums collected as service tax may be recovered under Section 73(1) read with Section 73A(1) of the Finance Act, 1994 and applicable Cenvat Credit Rules despite limitation rules.

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