CENVAT Credit Cannot be Denied on Ground that Supplier was not Liable to Pay Duty on Goods Supplied: CESTAT [Read Order]

In a significant judgement, the Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit cannot be denied on the ground that the supplier was not liable to pay duty on goods supplied.

Aarti Industries Limited,  the appellant was holding an advance license which has been authorised to M/s. Reliance India Limited by the invalidation of advance authorization in their favour, against the said invalidation, Reliance Industries Limited has supplied the inputs on payment of duty. The appellant has availed Cenvat credit of such duty. 

The department observed that supplies made to Reliance Industries Limited are against the invalidation of advance authorization in their favour therefore, the supplies are governed by Notification No. 44/2001-CE (NT) dated 26.06.2001 under which the supplier was not supposed to pay any excise duty and they were compulsory to take exemption under the said notification therefore, the supplies made without availing exemption on payment of duty, on such duty Cenvat credit is not admissible to the appellant.  

The supplier of inputs without availing said notification, cleared the goods on payment of duty therefore, the appellant is correctly entitled to the Cenvat credit. He further submits that once the duty was paid by the supplier irrespective of the fact that the same is payable or not, the recipient of the inputs cannot be denied Cenvat credit.  The assessment of duty at the supplier end cannot be questioned at the recipient end for allowing Cenvat credit. 

The two-member bench comprising Mr Ramesh Nair, (Judicial) and Mr C L Mahar, (Technical) viewed that the department has denied the credit only on the ground that the supplier was supposed to avail exemption Notification No. 44/2001-CE (NT) dated 26.06.2001 and since the supplier has not availed exemption, duty paid on the said goods shall not available Cenvat credit to the appellant as the recipient of the goods. 

The Tribunal held that “where even if the duty is not payable by the supplier but the same was paid, Cenvat credit cannot be denied at the recipient end.” Further, the CESTAT set aside the impugned orders and allowed the appeal.

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