2009 (10) TMI 767 - AT - Central Excise

Penalty u/r 26 - CENVAT credit - waste generated during the course of manufacture - after the goods were cleared from the factory of IIL they were diverted to the Viramgam/lndore based Hard Binding wire factories who were not in the cenvat chain - Held that - the only ground for enhancing the penalty was that as per Rule 26(2)(i) of the Central Excise Rules any person issuing excise duty invoice without delivering the goods specified therein or abets in making such invoice is liable to a penalty not exceeding the amount of such benefit or 5000/- whichever is greater. At the outset it was submitted that Rule 26(2) was inserted on 1-3-2007 & the period of dispute in the instant case is from October 2003 to March 2004. Hence penalty cannot be imposed under the provision non-existent during the relevant period - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Appeal against penalty imposed under Rule 26 of the Central Excise Rules, 2002.
2. Alleged diversion of goods and cenvat credit fraud.
3. Corporate entity's liability under Rule 209A of the Central Excise Rules, 1944.
4. Application of Rule 26(2)(i) of the Central Excise Rules.

Analysis:
1. The appeal pertained to the penalty imposed under Rule 26 of the Central Excise Rules, 2002. The appellant, Ispat Industries Ltd. (IIL), challenged the penalty of Rs. 65,000/- imposed on it, while the Revenue filed an appeal against the reduction of penalty from Rs. 1,31,340/- to Rs. 65,000/-. The case involved the sale of HR trimmings by IIL through an internet portal, leading to alleged diversion of goods.

2. The issue of alleged diversion of goods and cenvat credit fraud arose. The investigation revealed a chain of connivance involving Viramgam-based dealers/suppliers and manufacturers. However, it was argued that IIL was not involved in the fraud as it had cleared the HR trimmings after paying excise duty. Previous tribunal decisions supported IIL's position that it had no reason to believe the goods were liable to confiscation.

3. The question of a corporate entity's liability under Rule 209A of the Central Excise Rules, 1944 was raised. It was contended that penalties under Rule 209A could not be imposed on corporate entities, citing relevant tribunal decisions supporting this argument.

4. The application of Rule 26(2)(i) of the Central Excise Rules was examined. The Tribunal considered the insertion of this rule on 1-3-2007 and ruled in favor of IIL, stating that penalties could not be imposed under provisions non-existent during the relevant period. The Tribunal's decision favored IIL in this regard, leading to the dropping of the penalty imposed and setting aside the Revenue's appeal.

In conclusion, the Tribunal allowed the appeal filed by IIL, dropping the penalty imposed on it, and set aside the Revenue's appeal. The judgment highlighted the lack of IIL's involvement in the alleged fraud, the non-applicability of penalties to corporate entities, and the inapplicability of Rule 26(2)(i) during the relevant period.