The Customs, Excise and Service Tax Appellate Tribunal has clarified that Cenvat credit taken on supplementary invoices issued due to judicial clarification on valuation is not invalid merely because the original invoices omitted royalty charges. The ruling reinforces that absence of evidence of suppression negates denial of credit under Rule 9(1)(b), offering critical relief to manufacturers relying on vendor-issued invoices.
Background & Facts
The Dispute
The appellant, M/s. Agrasen Sponge Pvt. Ltd., availed Cenvat credit of Rs. 23,36,700 during April 2016 to March 2017 based on supplementary invoices issued by M/s. Mahanadi Coalfields Ltd. (MCL). These invoices were raised after the Supreme Court held that royalty payments on coal mining must be included in the assessable value for excise duty. The Revenue denied the credit, alleging that the supplementary invoices triggered exclusion under Rule 9(1)(b) of the Cenvat Credit Rules, 2004, which bars credit on invoices issued for "recoverable duty" arising from vendor suppression.
Procedural History
- 2016 - 2017: Appellant availed Cenvat credit on original invoices from MCL, which excluded royalty charges.
- 2018: MCL, following Supreme Court direction, issued supplementary invoices including royalty and paid additional excise duty.
- 21.12.2018: Revenue issued Show Cause Notice (SCN) to appellant denying Cenvat credit under Rule 9(1)(b).
- 09.06.2022: Commissioner (Appeals) confirmed demand of Rs. 23,36,700 plus interest.
- 29.01.2026: Appeal heard before Tribunal.
Relief Sought
The appellant sought cancellation of the demand, arguing that: (1) no suppression was proven on its part; (2) the issue was one of legal interpretation, not fraud; and (3) the SCN was time-barred under Section 73 of the Central Excise Act, 1944.
The Legal Issue
The central question was whether Rule 9(1)(b) of the Cenvat Credit Rules, 2004, permits denial of Cenvat credit when supplementary invoices are issued due to judicial clarification on valuation, absent any evidence of suppression or fraud by the recipient.
Arguments Presented
For the Appellant
The appellant’s counsel argued that the supplementary invoices were issued only after the Supreme Court’s definitive ruling in Mahanadi Coalfields Ltd. v. Union of India, resolving a long-standing ambiguity on royalty inclusion. She cited Birla Corporation v. CGST (Final Order No. 52486/2018) where the Tribunal held that credit cannot be denied where the vendor’s error stems from legal interpretation, not suppression. She emphasized that the appellant had recorded all credits accurately in ER-1 returns and had no knowledge of MCL’s valuation error.
For the Respondent
The Revenue contended that since MCL initially omitted royalty from invoices, the subsequent supplementary invoices constituted "recoverable duty" under Rule 9(1)(b). It argued that the appellant’s credit was therefore ineligible, regardless of the appellant’s good faith. The Department relied on the principle that credit must be based on valid invoices at the time of receipt, and that post-facto corrections do not validate prior claims.
The Court's Analysis
The Tribunal rejected the Revenue’s contention on multiple grounds. First, it noted that the Show Cause Notice against the appellant contained no evidence that MCL had been found guilty of suppression or that any recoverable duty had been determined against MCL. The mere issuance of supplementary invoices does not, by itself, trigger Rule 9(1)(b). The provision requires a nexus between suppression by the vendor and the resulting recoverable duty - neither of which was established.
"The exclusion specified under Rule 9(1)(b) of Cenvat Credit Rules, 2004 is clear to the effect that only when the supplementary invoices raised in respect of 'recoverable duty amount' on account of suppression etc. on the part of the vendor, the Cenvat credit can be denied. In the present case no such factual details have been brought in by the Revenue."
The Tribunal further held that the issue of royalty inclusion was subject to prolonged litigation before the Supreme Court, and the appellant’s reliance on MCL’s invoices was reasonable. It distinguished this case from instances of deliberate under-invoicing, emphasizing that legal uncertainty cannot be equated with fraudulent intent. The Tribunal also relied on its own precedent in South Eastern Coalfields Ltd., where it had stayed proceedings pending the Supreme Court’s final decision, recognizing the inherent ambiguity.
Additionally, the Tribunal accepted the appellant’s time-bar argument. The SCN was issued more than 18 months after the relevant period, and no evidence of fraud or willful evasion was presented to extend the limitation period under Section 73(2). The absence of suppression negated the applicability of the extended limitation.
The Verdict
The appellant won. The Tribunal held that Cenvat credit on supplementary invoices is valid where the original invoice omission arises from legal ambiguity, not vendor suppression, and that Rule 9(1)(b) cannot be invoked without concrete evidence of suppression or recoverable duty. The demand was set aside in full, with consequential relief granted.
What This Means For Similar Cases
Credit Cannot Be Denied on Supposition Alone
- Practitioners must challenge denials of Cenvat credit where the Revenue relies on vague allegations of vendor suppression without producing adjudication orders, recovery notices, or penalty proceedings against the supplier.
- The burden lies on the Department to prove both suppression by the vendor and the existence of recoverable duty - mere issuance of a supplementary invoice is insufficient.
Legal Uncertainty Shields Recipients from Liability
- When a valuation issue is under judicial consideration, recipients of goods who rely on vendor invoices in good faith are protected from retrospective denial of credit.
- This applies equally to GST and pre-GST regimes where Cenvat credit was available.
Time Bar Is a Powerful Defense in Absence of Fraud
- In cases where no fraud is alleged or proven, practitioners should raise limitation as a standalone ground for relief, even if the primary issue is credit eligibility.
- SCN issued beyond 18 months without evidence of willful evasion is time-barred under Section 73(1) of the Central Excise Act, 1944.
