2017 (3) TMI 635 - AT - Central Excise

Imposition of penalty u/r 26 - wrongly passing of fraudulent cenvat credit - Held that - appellant was involved in arranging the invoices from registered dealer whereas no goods mentioned in the invoices were supplied. He was involved in the transaction of money in the entire modus operandi. Therefore he was liable for penalty u/r 26 - However, whether penalty is imposable u/r 26(2) which came into effect from 01.03.2007 for the substantial period the provision of rule 26(2) was not applicable prior to 01.03.2007. Considering this position and overall facts of the case, the appellant deserves some leniency in the quantum of penalty. Issuance of cenvatable invoices without supply of goods for passing out fraudulent credit - Held that - the penalty is imposable u/r 26(2) of Central Excise Rules, 2002. On the same observation as made hereinabove, rule 26(2) came into effect on 01.03.2007; accordingly, penalty deserved to be reduced. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
Imposition of penalty under Rule 26 on appellants for aiding and abetting in fraudulent passing of cenvat credit invoices.

Analysis:
The judgment by the Appellate Tribunal CESTAT MUMBAI, delivered by Member (Judicial), Shri Ramesh Nair, pertains to the imposition of penalties under Rule 26 of the Central Excise Rules, 2002 on various appellants involved in aiding and abetting the passing of fraudulent cenvat credit invoices. The first appellant, Minaz Gadhia, a director of a company engaged in supplying Bazaar scrap, was alleged to have aided in the issuance of invoices by a registered dealer, leading to fraudulent extension of cenvat credit. A penalty of ?7 lakhs was imposed on Minaz Gadhia. The other appellants, Parmeshwari Steels, Kedarnath Dubey, and Pramod Singh, were also found to have knowingly aided in passing fraudulent cenvat credit, resulting in penalties of ?7 lakhs, ?2 lakhs, and ?2 lakhs respectively.

The counsel for Minaz Gadhia argued that he was solely involved in the sale of Bazaar scrap and had no role in the issuance of fraudulent invoices by the registered dealer. It was contended that Minaz Gadhia should not be penalized under Rule 26 as he was not a beneficiary of the wrongful credit availment. Additionally, it was highlighted that Rule 26(2) was inserted post the period in question, and Minaz Gadhia did not have control over the registered dealer issuing the invoices. The revenue, represented by the Asstt. Commissioner, reiterated the lower authorities' findings, emphasizing Minaz Gadhia's active involvement in arranging invoices and monetary transactions, justifying the penalty imposition.

Upon review, the Tribunal acknowledged Minaz Gadhia's involvement in the fraudulent credit passing scheme and upheld the penalty imposition. However, considering the applicability of Rule 26(2) during the relevant period, the Tribunal reduced the penalties for Minaz Gadhia and the other appellants. The penalties for Minaz Gadhia were reduced from ?2 lakhs to ?1 lakh each for the respective appeals. Similarly, the penalties for Parmeshwari Steels, Kedarnath Dubey, and Pramod Singh were reduced from ?7 lakhs, ?2 lakhs, and ?2 lakhs to ?4 lakhs, ?1 lakh, and ?1 lakh respectively.

In conclusion, the Tribunal partially allowed the appeals, modifying the impugned order to reduce the penalties imposed on the appellants involved in aiding and abetting the fraudulent passing of cenvat credit invoices. The judgment was pronounced on 03/02/2017 by the Appellate Tribunal CESTAT MUMBAI.