2015 (4) TMI 420 - HC - Central Excise

Imposition of penalty - Denial of CENVAT Credit - Held that - availment of cenvat credit on the part of the present appellant is a clear case of fraud committed by M/s Ankit Textiles. The fraud vitiates entire transaction. When M/s Ankit Textiles cannot be held valid to enable credit by the dealer as it itself fictitious because the present dealer has purchased from M/s Ankit Textiles who is no more in existence and fictitious firm and, therefore, the present appellant could not have availed cenvat credit and, therefore, the authorities below as well as learned Tribunal have rightly confirmed ultimately by reducing the amount of penalty from ₹ 7,36,707/- to ₹ 2,00,000/- which, in our view, is in consonance with the allegations levelled against the present appellant and proved fact in view of the clear provisions of the Cenvat Credit Rules, 2002. - Decided against assessee.

Summary

Issues:
1. Imposition of penalty under Rule 13 on a dealer who has not dealt with inputs or capital goods.
2. Imposition of penalty when the order demanding wrongly availed credit is set aside.

Analysis:

Issue 1:
The tax appeal was filed under Section 35-G of the Central Excise Act, 1945, challenging the order of the Customs, Excise and Service Tax Appellate Tribunal. The appellant, a dealer of dutiable excisable goods, was accused of wrongly availing cenvat credit based on invoices from a manufacturer with a fake address. The appellant claimed innocence, stating they transacted through an agent. However, it was established that the appellant had not taken reasonable precautions as required by Rule 7(2) of the Cenvat Credit Rules 2002. The authorities found the appellant's actions to be indicative of contravention of the rules, leading to the imposition of a penalty under Rule 13. The Tribunal confirmed the penalty, reducing it from Rs. 7,36,707 to Rs. 2,00,000, considering the fraudulent nature of the transaction and the appellant's failure to verify the genuineness of the supplier.

Issue 2:
The second substantial question revolved around whether a penalty could be imposed when the order demanding wrongly availed credit was set aside. The Tribunal, after considering the factual scenario, concluded that the appellant's availment of cenvat credit was based on a fraudulent transaction by the supplier with a fake and non-existent firm. As a result, the authorities upheld the penalty, albeit reducing the amount. The judgment favored the respondent department, dismissing the appeal and emphasizing the importance of complying with the provisions of the Cenvat Credit Rules, 2002. The decision highlighted the need for dealers to exercise due diligence and verify the authenticity of transactions to avoid penalties for contraventions.