2012 (11) TMI 1018 - AT - Central Excise

Penalty under Rule 26 of the Central Excise Rules 2002 - Irregular CENVAT Credit availed - Held that - M/s Aditya Steel Rolling Pvt. Ltd. who issued invoices without supply of scrap (input) to M/s Usha Enterprises and it was the latter who issued invoices without supply of the material to M/s Ashok Iron Works Pvt. Ltd. This case of the department is based on confessional statements of the said parties and the same was noted by this Bench in the above final order. The assessee (M/s Ashok Iron Works Pvt. Ltd.) did not controvert the statements of M/s Aditya Steel Rolling Pvt. Ltd. and M/s Usha Enterprises. I find that they have offered to reverse the CENVAT credit in question and they did so. On these facts, the collusion between the assesseee on the one hand and M/s Aditya Steel Rolling Pvt. Ltd. and M/s Usha Enterprises on the other is fairly clear. The penalties imposed on them under Rule 26 are sustainable in principle. Assessee did claim CENVAT credit on the strength of invoices issued by M/s Usha Enterprises who gave the statement that they had not supplied any materials under cover of the invoices. Moreover, the assessee voluntarily reversed the irregularly availed CENVAT credit. The assesee s conduct did not in any way conflict with the statements given by the parties who issued invoices. In the circumstances, the aforesaid plea contained in the written submissions cannot be accepted. The penal liability for issuing statutory invoices without supply of goods was recognized by the legislature as early as in 2007 vide sub-rule 2 of Rule 26 of the Central Excise Rules 2002. In the facts and circumstances of this case, the appellants are liable to be penalized under this provision of law. However, it appears to me that the penalty equal to the CENVAT credit in question will be harsh on each of these appellants - Therefore, penalty reduced - Decided partly in favour of assessee.

Summary

Issues:
Penalties imposed under Rule 26 of the Central Excise Rules 2002 on the appellants for fraudulent availment of CENVAT credit.

Analysis:

1. Penalties Imposed on the Appellants:
The original authority imposed penalties on the appellants under Rule 26 of the Central Excise Rules 2002 for their involvement in the fraudulent availment of CENVAT credit by M/s Ashok Iron Works Pvt. Ltd. The penalties were upheld by the Commissioner (Appeals), who found that the appellants played a role in the irregular availment of CENVAT credit, leading to the imposition of penalties.

2. Dismissal of Appeal by the Bench:
Appeal No. E/1410/2010 filed by M/s Ashok Iron Works Pvt. Ltd. against the demand of duty and penalty was dismissed by the Bench. The appeal challenged the penalty imposed under Rule 15 of the CENVAT Credit Rules 2004 read with Section 11AC of the Central Excise Act. The appellant exercised the option to pay 25% of the duty amount towards penalty under Section 11AC, which was upheld by the Commissioner (Appeals).

3. Collusion and Liability of Appellants:
The department alleged collusion between M/s Aditya Steel Rolling Pvt. Ltd., M/s Usha Enterprises, and M/s Ashok Iron Works Pvt. Ltd. in issuing invoices without actual supply of goods. The appellants did not contest the statements made by the other parties and voluntarily reversed the irregularly availed CENVAT credit. The Bench found the penalties imposed under Rule 26 sustainable due to the clear collusion between the parties involved.

4. Penal Provisions and Modification of Penalties:
The Bench recognized the penal liability for issuing statutory invoices without the actual supply of goods under Rule 26 of the Central Excise Rules 2002. While upholding the penalties, the Bench considered the harshness of imposing penalties equal to the CENVAT credit amount. To ensure justice, the Bench modified the penalties to Rs. 40,000/- each on the appellants, instead of the original amount.

5. Final Disposition:
The appeals were disposed of by sustaining the penalties but modifying the penalty amount to Rs. 40,000/- each on the appellants. The judgment highlighted the fraudulent practices in availing CENVAT credit and the liability of the appellants in the scheme of collusion between the parties involved.

This detailed analysis of the judgment showcases the legal reasoning behind the imposition and modification of penalties in the case involving the fraudulent availment of CENVAT credit under the Central Excise Rules.