2010 (11) TMI 322 - AT - Central Excise

Penalties on respondents-dealers - The party was a manufacturer on paper - The transactions between the manufacturer and the respondents-dealers, are only paper transactions without actual movement of goods - As there are no goods, question of rendering any goods liable for confiscation does not arise - By notification No. 8/2007 dated 1-3-07 issue of such invoices without supply of the goods also attract penal provisions - Prior to that, there is no provision for imposing penalty for merely dealing with the invoices. Held that where a person merely arranges modvatable document to the manufacturer without actual delivery of goods, penalty could not be imposed under Rule 209A - Rule 26(2) of Central Excise Rules, 2002 prior to amendment on 1-3-2007 is akin to Rule 209A - Hence, the appeals by the Department are rejected.

Summary

Issues:
Appeal against setting aside of penalties on respondent-dealers for issuing invoices without actual supply of goods.

Analysis:
The appeals filed by the Department challenge the setting aside of penalties on respondent-dealers who issued invoices without actual supply of goods. The respondents are registered dealers passing on Cenvat credit of duty paid on excisable goods procured from manufacturers to users of inputs. The investigation revealed that the dealers showed purchases from a party without manufacturing facilities. The Department alleged that these transactions were paper transactions without actual movement of goods, leading to the imposition of penalties. The Commissioner (Appeals) dismissed appeals by manufacturers availing Cenvat credit but allowed appeals by respondent-dealers. The Department argued that penalties should apply based on previous Tribunal decisions and a clarificatory notification. However, the respondent-dealers relied on a High Court decision stating that penalties do not apply when there is no movement of goods. The Tribunal noted that in this case, there were no actual goods involved, unlike previous cases where goods were diverted. The Tribunal referenced the High Court decision and held that penalties could not be imposed under Rule 26 prior to its amendment in 2007. As there were no goods involved in the transactions, the appeals by the Department were rejected.

This detailed analysis covers the issues raised in the appeal, the arguments presented by both sides, relevant legal precedents, and the Tribunal's decision based on the specific circumstances of the case.