2009 (1) TMI 163 - AT - Central Excise

Suppliers of the grey fabrics who had issued the invoices, found to be non-existent/fake/bogus - revenue not proved that respondents had connived with the suppliers and availed credit - As rightly observed by the Commissioner that the respondents can be found fault work for not taking reasonable steps as contemplated in Rule 7 of CENVAT Credit Rules, but they cannot be held liable to penalty u/s 11AC of CEA. 1944 - Moreover, suppression of facts/fraud or misdeclaration not proved - impugned imposing penalty u/r 13(1) now 15(1) of CCR instead of 11AC of CEA, is justified

Summary

Issues:
1. Disallowance of Cenvat credit on grey fabrics due to non-existent/fake/bogus supplier.
2. Imposition of penalty under Rule 13 of Cenvat Credit Rules.

Analysis:
1. The case involved M/s. Pratigya Processors availing Cenvat credit on grey fabrics from a supplier later found to be non-existent/fake/bogus. A show cause notice was issued, leading to disallowance of credit, penalty, and interest. The Commissioner held that while no evidence proved the respondents facilitated fraud, they failed to ensure duty payment on the invoices, contravening Rules 7(2) and 7(4) of Cenvat Credit Rules, 2002. Thus, penalty was imposed under Rule 13 for non-compliance.

2. The respondents did not appear, and the Revenue argued for penalty under Section 11AC, challenging the Commissioner's decision. However, it was noted that no evidence showed connivance with the suppliers for availing credit. While faulted for not taking reasonable steps under Rule 7, the respondents were not liable for Section 11AC penalty. Insufficient evidence of suppression of facts or fraud was also acknowledged. Consequently, the order imposing penalty under Rule 13 was upheld, rejecting the Revenue's appeal.

In conclusion, the Appellate Tribunal affirmed the Commissioner's decision, emphasizing the lack of evidence implicating the respondents in fraud, while acknowledging their failure to ensure duty payment on invoices. The penalty under Rule 13 was deemed appropriate, given the circumstances, and the Revenue's appeal was dismissed.