Cenvat credit was allowable to assessee even if supplier hadn’t discharged its duty

Commissioner of Central Excise, Jalandhar v. Kay Kay Industries (2013) (Supreme Court)

Requirement of taking "reasonable steps" does not mean that assessee is required to verify from department whether duty stands paid by supplier because that would be practically impossible and would lead to transactions getting delayed; therefore, assessee is entitled to credit even if supplier has not paid duty to department

In the instant case the assessee took deemed Modvat credit benefit under Notification No. 58/97-CE(NT) on basis of invoices issued by supplier of inputs, but on verification it was found that supplier had not paid duty. The Department opined that since rule 57A(6) required the assessee to take all reasonable steps to ensure that duty had been paid, no credit could be allowed if duty had not been paid on inputs supplied.

The Supreme Court held in favour of assessee as under:

• In this case supplier of inputs had given declaration indicating that excise duty had been paid on said inputs. Fact that supplier had not discharged duty was a lapse on part of seller; it was different and not a condition or rather a precondition postulated in Notification;
• When there was a prescribed procedure and that had been duly followed by the assessee, it could not be said that the assessee had not taken reasonable steps as prescribed in notification;
• Due care and caution were taken by the assessee and it was not stated by Department what further care and caution could have been taken. Requirement of "reasonable care" does not mean verification from department whether duty stands paid by supplier because that would be travelling beyond notification and practically impossible and would lead to transactions getting delayed;
• Thus, the Assessee was entitled to deemed credit under the Notification No. 58/97-CE(NT).