2017 (6) TMI 941 - AT - Central Excise

Penalty u/r 26 of CER 2002 - case of appellant is that in respect of their offence there were no excisable goods in existence; therefore provisions of the then Rule 26 for imposing penalty on them are not applicable - Held that - provisions of Rule 26 as it existed prior to 1st March 2007 and after March 1 2007 when insertion of sub-rule 2 was made in Rule 26 it is clear that the offences concerning issual of excise duty invoice and also issual of any other document without delivery of the related goods for availing/taking ineligible benefit under law of Central Excise in the form of Cenvat credit or otherwise; or abetment of making invoices/ documents for availing said ineligible benefit have been made liable to penalty under Rule 26 (2) of CER - issual of invoices/documents and the abetment in making such documents leading to claiming/taking of ineligible benefit of Cenvat credit etc. by an assessee was not liable to penalty during the relevant period under the then Rule 26 of CER - appeal allowed - decided in favor of appellant.

Summary

Issues:
Penalty imposition under Rule 26 of Central Excise Rules, 2002 for fraudulent availment of inadmissible Cenvat credit based on fake invoices.

Analysis:

Issue 1: Penalty Imposition under Rule 26
The appellants were appealing against penalties imposed on them under Rule 26 of Central Excise Rules, 2002, for their involvement in fraudulent activities related to inadmissible Cenvat credit based on fake invoices. The appellants argued that Rule 26 did not apply to their offenses as there were no excisable goods involved in their activities. They cited legal precedents to support their claim, including a decision by the Bombay High Court and a Tribunal's decision. On the other hand, the Revenue contended that Rule 26 was applicable to the appellants' actions as it covered any person dealing with excisable goods or engaging in related activities. It was noted during the hearing that Rule 26 was amended in 2007, introducing a new sub-rule. The analysis of Rule 26 before and after the amendment revealed that penalties under the old rule were not applicable to activities like issuing fake invoices for ineligible benefits, as in the appellants' case. The Tribunal and the Bombay High Court had previously ruled in similar cases that penalties under the old Rule 26 did not apply to such offenses. Consequently, the penalties imposed on the appellants were set aside, and their appeals were allowed.

This judgment provides a detailed analysis of the applicability of penalties under Rule 26 of the Central Excise Rules, 2002, in cases involving fraudulent availment of Cenvat credit based on fake invoices. It clarifies the scope of the rule before and after an important amendment, highlighting that penalties under the old rule did not cover offenses like issuing fake invoices for ineligible benefits. The decision aligns with previous legal interpretations and sets a precedent for similar cases in the future.