Supplementary invoice credit is barred for supplier tax evasion, but recipient penalties require culpable conduct.

CENVAT credit on supplementary invoices is barred under Rule 9(1)(bb) where the supplier's additional service tax becomes recoverable due to fraud, suppression, wilful misstatement or other conduct intended to evade tax. Departmental detection of the supplier's earlier non-payment, together with only partial immunity and reduced penalty before the Settlement Commission, supported application of that exclusion; denial of credit with interest was therefore sustained. Penalty for wrongful credit availment requires culpable omission or conduct by the recipient. As the invoices contained the prescribed duty-payment and taxable-value particulars and no omission was attributable to the recipient, penalty under Rule 15(2) read with Section 11AC was not imposable.

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Issues: (i) Whether CENVAT credit was admissible on supplementary invoices issued after detection of the service provider's prior non-payment of service tax; (ii) Whether penalty for wrongful availment of such credit was imposable on the appellant.

Issue (i): Whether CENVAT credit was admissible on supplementary invoices issued after detection of the service provider's prior non-payment of service tax.

Analysis: Rule 9(1)(bb) of the Cenvat Credit Rules, 2004 excludes credit on supplementary invoices where the additional tax became recoverable because of non-levy or non-payment occasioned by fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax. The service provider issued the supplementary invoices and paid the tax only after departmental detection of the earlier non-payment. The Settlement Commission's grant of only partial immunity, accompanied by reduction rather than elimination of penalty, established that the non-payment fell within the exclusion contemplated by Rule 9(1)(bb).

Conclusion: CENVAT credit on the supplementary invoices was inadmissible, and the denial of credit with interest was sustained against the assessee.

Issue (ii): Whether penalty for wrongful availment of such credit was imposable on the appellant.

Analysis: The invoices relied upon for credit contained the prescribed particulars, including duty payment and taxable value. There was no omission attributable to the appellant in availing credit on those documents.

Conclusion: Penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was not imposable; this issue was decided in favour of the assessee.

Final Conclusion: The statutory bar to credit arising from the service provider's tax evasion applies, but penal liability of the recipient requires an omission or culpable conduct attributable to that recipient.

Ratio Decidendi: Credit on supplementary invoices is barred under Rule 9(1)(bb) where the supplier's additional tax liability arose from fraud, suppression, or like conduct with intent to evade tax; penalty on the credit recipient cannot be imposed absent culpable omission by that recipient.

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