Cenvat Credit Availed on Invoices Issued by Bogus and Non-Existent Suppliers Is Inadmissible: CESTAT

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that cenvat credit availed on invoices issued by bogus and non-existent suppliers is inadmissible. The bench of Satendra Vikram Singh (Technical Member) has observed that the company had availed Cenvat credit on the basis of invoices issued by suppliers who were subsequently found to be fake, fictitious, or non-existent and had failed to take the “reasonable steps” mandated under Rule 7(2) of the Cenvat Credit Rules, 2002 to verify the authenticity of the suppliers and the duty-paid nature of the goods. Saiyam Silk Mills Pvt. Ltd., a Surat-based processor of man-made fabrics, had availed Cenvat credit amounting to ₹15,64,330 during the period between December 2003 and June 2004 on grey fabric invoices issued by six suppliers. Following investigations, the department alleged that the suppliers named in the invoices were non-existent entities and that the invoices were merely used to facilitate fraudulent availment of credit. A show cause notice issued in December 2008 proposed recovery of the credit along with interest and penalties under the Central Excise Act and the Cenvat Credit Rules. The adjudicating authority confirmed the demand in 2021, invoking the extended limitation period and imposing an equivalent penalty. Although the Commissioner (Appeals) subsequently set aside the penalty imposed on the company’s director, the credit demand and penalty against the company were upheld. The company contended that the demand was time-barred because the show cause notice was issued more than four years after the availment of credit. The extended limitation period could not be invoked in the absence of fraud, wilful suppression, or deliberate misstatement. The suppliers were in existence when the transactions occurred and could not be treated as non-existent merely because they were untraceable during investigations conducted years later. The department had not established that the goods were never received. Principles of natural justice had been violated because certain relied-upon documents were not supplied to the company. The assessee relied upon several decisions of the Supreme Court and the Gujarat High Court to argue that mere non-traceability of suppliers cannot automatically justify denial of credit or invocation of the extended limitation period. The department argued that the case involved deliberate fraud involving fictitious suppliers and fabricated documentation. According to the department, the company knowingly procured grey fabrics through intermediaries without verifying the identity of the suppliers. The Revenue relied on the statement of the company’s director, who admitted that the goods were procured through brokers and that he did not know the identity or address of the actual suppliers. The department further contended that once the suppliers were found to be non-existent, the entire chain of transactions stood vitiated and the invoices could not be treated as valid duty-paying documents. The Tribunal first dealt with the allegation that documents relied upon by the department had not been supplied. It observed that the request for copies of documents was made only after the adjudication order had already been passed and that no such objection had been raised during the adjudication proceedings. Consequently, the Tribunal found no merit in the plea of violation of natural justice. A substantial part of the judgment is devoted to examining precedents of the Gujarat High Court concerning fraudulent Cenvat credit schemes involving bogus grey fabric suppliers. The Tribunal relied heavily on the Gujarat High Court’s decisions in Prayagraj Dyeing & Printing Mills Pvt. Ltd., Shiv Enterprises, and Rivaa Exports, which emphasized that Rule 7(2) imposes a positive obligation on credit availing manufacturers to verify the identity and address of suppliers and ensure that duty has actually been paid on the goods. The Tribunal noted that even where an assessee is not directly involved in the fraud, failure to undertake the prescribed verification measures disentitles it from claiming Cenvat credit. The Tribunal also highlighted several irregularities that had been identified during earlier proceedings, including abnormally high values of grey fabrics compared to prevailing market rates. Absence of fabric width and detailed descriptions in invoices. Multiple suppliers operating from the same address. Common addresses for merchant exporters. Illegible signatures on delivery challans without identification of the signatory. Lack of transport details and vehicle numbers. Vague descriptions such as “unprocessed grey cloth.” According to the Tribunal, these discrepancies were sufficient to put the assessee on notice regarding the questionable nature of the transactions and demonstrated that the company knowingly relied on unreliable documentation. While acknowledging that the Gujarat High Court has held that positive evidence of evasion is necessary for invoking the extended limitation period, the Tribunal concluded that such evidence existed in the present case. The Bench observed that the numerous discrepancies in the invoices, coupled with the use of non-existent suppliers and the failure to conduct mandatory verification, reflected conscious conduct on the part of the assessee. Consequently, invocation of the extended period under Section 11A of the Central Excise Act was found to be justified. The Tribunal upheld the recovery of Cenvat credit amounting to ₹15,64,330; interest liability; and equal penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Case Details Case Title: Saiyam Silk Mills Pvt Ltd Versus Commissioner Of Cgst & Central Excise- Surat Citation: JURISHOUR-1517-CES-2026(AHM) Case No.: Excise Appeal No. 10401 of 2022 Date: 02.06.2026 Counsel For Appellant: Hiteshi Desai, Advocate Counsel For Respondent: Sarjeet Kumar, Superintendent (AR) Click Here To Read Order Read More: Loading, Unloading Contract Not Taxable Under Reverse Charge as Manpower Supply Service: CESTAT

Cenvat Credit Availed on Invoices Issued by Bogus and Non-Existent Suppliers Is Inadmissible: CESTAT

Membership Required

Latest articles

Services Used for Setting Up Factory Continue to Qualify as ‘Input Services’: CESTAT

Customs Can’t Enhance Import Value Solely on NIDB Data Without Proof of Comparable Imports: CESTAT

Bona Fide Mistakes Shouldn’t Defeat Substantive Tax Rights: Karnataka High Court Allows Correction of GST DRC-03 Filing Error

Procedural Delay Should Not Defeat Scheme Benefits: CESTAT Directs Manual Processing of SVLDRS Discharge Certificate

More like this

Services Used for Setting Up Factory Continue to Qualify as ‘Input Services’: CESTAT

Customs Can’t Enhance Import Value Solely on NIDB Data Without Proof of Comparable Imports: CESTAT

Bona Fide Mistakes Shouldn’t Defeat Substantive Tax Rights: Karnataka High Court Allows Correction of GST DRC-03 Filing Error

About us

Company

Categories