2010 (12) TMI 70 - HC - Central Excise

Penalty Wrong availment - non existent/fake/bogus credit Held that - On a plain reading of rule 13 (2) of Cenvat Credit Rules, 2002, it is apparent that the same can be invoked in a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty, in which case the manufacturer would be liable to pay penalty in terms of section 11AC of the Act. Thus, a condition precedent for invoking the provisions of sub-rule (2) of rule 13 of the Rules there should be a finding to the effect that the manufacturer has taken or wrongly utilized the CENVAT credit on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty. evidence in record is not sufficient to conclude that the assessee is a party to the fraud. It has also been recorded that the findings of the Adjudicating Authority that there is suppression of facts with intent to avail wrong credit is based on conjectures and surmise and not on solid evidence. On behalf of the revenue, nothing has been pointed out to dislodge the concurrent findings of fact recorded by both the appellate authorities. In the light of the aforesaid concurrent findings of fact recorded by both, the Commissioner Appeals as well as the Tribunal, it is apparent that the conditions precedent for invoking the provisions of rule 13 (2) of the Rules are clearly not satisfied

Summary

Issues:
- Challenge to order under section 35G of the Central Excise Act, 1944
- Evidence of connivance with suppliers for availing Cenvat Credit
- Justification of reduction in penalty
- Alleged contravention of CENVAT Credit Rules
- Liability for penalty under Rule 13 (1) vs. Rule 13 (2)

Analysis:

1. The appellant revenue challenged an order passed by the Tribunal under section 35G of the Central Excise Act, 1944, raising questions regarding the evidence of connivance with suppliers for availing Cenvat Credit, justification of penalty reduction, alleged contravention of CENVAT Credit Rules, and liability for penalty under different rules.

2. The respondent, a manufacturer of man-made fabrics, availed Cenvat credit on grey fabrics based on invoices from non-existent/fake suppliers. The adjudicating authority disallowed the credit, imposed a penalty, and interest. The Commissioner [Appeals] partly allowed the appeal, modifying the penalty under Rule 13 (1) of the Cenvat Credit Rules, 2002. The Tribunal upheld this decision.

3. The appellant contested the Tribunal's order, arguing that the evidence showed the assessee facilitated fraud but was not a party to it. The Commissioner [Appeals] found no specific suppression of facts and concluded that the penalty imposed was not justified. The Tribunal confirmed these findings, holding the assessee liable under Rule 13 (1) of the Cenvat Credit Rules, 2002, not under section 11AC of the Act.

4. Rule 13 (2) of the Cenvat Credit Rules, 2002 allows penalty if CENVAT credit is wrongly utilized due to fraud, willful misstatement, collusion, or suppression of facts. Both appellate authorities found insufficient evidence to establish the assessee's involvement in fraud. The conditions for invoking Rule 13 (2) were not met, leading to the dismissal of the appeal due to the absence of substantial legal questions.

5. The judgment emphasizes the importance of solid evidence to establish fraud or suppression of facts for imposing penalties under the Cenvat Credit Rules. The decision underscores the need for a clear nexus between the alleged misconduct and the legal provisions to justify penalties under specific rules.