2011 (11) TMI 551 - AT - Central Excise

Duty demand - Wrong availment of CENVAT Credit - Held that - Proceedings were initiated for availment of wrong credit in respect of inputs/capital goods. The learned A.R. could not show me the rule under which rules on which inputs/capital goods on which Cenvat credit has been wrongly taken can be confiscated. He could not do so. Since the offending goods namely goods on which Cenvat credit has been wrongly taken cannot be confiscated, the question of any person having knowledge or reason to believe that offending goods are liable to confiscation cannot arise in this case. This is a clear case where offending goods are not liable to confiscation at all. Therefore Rule 26(1) is definitely not applicable to the facts of this case - Rule 26(2) is applicable in respect of a person who issues invoice without delivery of goods or any other document or abets in making such documents. Basically this Rule has been enacted to facilitate imposition of penalty on persons who issue fake/bogus invoices without supplying the goods to facilitate availment of Cenvat credit or on persons who abet in such activities. Under these circumstances, penalty cannot be imposed on the two respondents under Rule 26 - Decided against Revenue.

Summary

Issues:
1. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 against two individuals.
2. Applicability of Rule 26(1) of Central Excise Rules, 2002 in the case.
3. Confiscation of goods and penalty imposition under Rule 26(1) or Rule 26(2).

Issue 1: Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 against two individuals:
The case involved penalty imposition against two individuals under Rule 15(1) of Cenvat Credit Rules, 2004 by the original adjudicating authority. The Commissioner (Appeals) held that Rule 15 can only be invoked against a person who wrongly takes or utilizes Cenvat credit, which was done by the company and not the two individuals. The Commissioner observed that Rule 26(1) of Central Excise Rules, 2002 related to abetment and deemed it more appropriate in this case. He noted that under Rule 26(1), penalty cannot be imposed without goods being held liable to confiscation. The Revenue contended that knowledge or belief of goods being liable to confiscation is sufficient for penalty under Rule 26(1).

Issue 2: Applicability of Rule 26(1) of Central Excise Rules, 2002:
The Tribunal analyzed the application of Rule 26(1) in the case, emphasizing that the rule requires goods to be liable to confiscation for penalty imposition. The learned A.R. failed to demonstrate the rule under which goods on which Cenvat credit was wrongly taken could be confiscated. As the goods in question were not liable to confiscation, Rule 26(1) was deemed inapplicable. The Tribunal clarified that Rule 26(2) pertains to issuing fake invoices without delivering goods, primarily targeting individuals facilitating fraudulent activities for Cenvat credit availment.

Issue 3: Confiscation of goods and penalty imposition under Rule 26(1) or Rule 26(2):
The Tribunal concluded that the case did not warrant penalty imposition under Rule 26, as the goods on which Cenvat credit was wrongly taken were not subject to confiscation. Rule 26(2) was also deemed irrelevant as it pertains to issuing fake invoices without actual goods delivery. Consequently, the Tribunal rejected the Revenue's appeal, finding no merit in imposing penalties under Rule 26 in the given circumstances.

This detailed analysis of the judgment highlights the nuances of penalty imposition under different rules, clarifying the specific requirements for penalties related to Cenvat credit misuse and abetment under the Central Excise Rules.