2019 (10) TMI 954 - AT - Central Excise

Levy of penalty - It is contended that, Penalty under Rule 26(2) provision can be imposed only on a natural person. - The appellant is a partnership firm and per se is not a natural person - CENVAT credit - duty paying documents - fake invoices - fraudulent availment of CENVAT Credit based on invoices issued without actual supply of material mentioned in the invoices - imposition of penalty u/r 26 of CER - HELD THAT - Without receiving goods or supply of goods, the appellant has received invoices and also issued cenvatable invoices, facilitating M/s Reliance Cellulose Products Limited to avail fraudulent credit. The appellants having issued excise duty invoice without delivery of goods is, therefore, liable for penalty under Sub Rule 2 of Rule 26 of Central Excise Rules, 2002. There are no grounds to interfere with the findings of the Commissioner that the appellant is liable for penalty under Rule 26(2). However, the penalty of ₹ 22.00 lakhs imposed on the appellant is on the higher side - the imposition of fine of ₹ 5.00 lakhs would meet the ends of justice. Appeal allowed in part.

Summary

Issues:
Fraudulent availment of CENVAT Credit based on invoices issued without actual supply of material, Penalty imposition under Rule 26(2) of Central Excise Rules, 2002 on a partnership firm.

Analysis:
1. Fraudulent CENVAT Credit: The case involved fraudulent issuance of CENVAT invoices without actual supply of material, leading to wrongful availment of credit. Various entities were involved in a chain of transactions where invoices were passed without goods being received or supplied. The investigation revealed a complex network of transactions aimed at availing undue benefits through false documentation. The Tribunal found that the appellant, a partnership firm, had issued excise duty invoices without delivery of goods, facilitating the fraudulent credit availed by another entity. The Tribunal upheld the findings that the appellant was liable for penalty under Rule 26(2) of the Central Excise Rules, 2002.

2. Penalty Imposition: The appellant argued that as a partnership firm, it could not be penalized under Rule 26(2) which, according to them, applies only to natural persons. However, the Tribunal rejected this argument, emphasizing that the term "person" includes legal entities like firms. The Tribunal differentiated between Rule 26(1) and Rule 26(2), noting that the latter does not require specific knowledge or intent for imposing penalties related to fraudulent acts. The Tribunal referenced relevant case laws to support its decision, ultimately concluding that the penalty imposed on the appellant was justified but deemed the original amount excessive. The penalty was reduced from ?22.00 lakhs to ?5.00 lakhs, considering the circumstances of the case.

3. Legal Interpretation: The Tribunal extensively analyzed the provisions of Rule 26(1) and Rule 26(2) of the Central Excise Rules, 2002 to determine the applicability of penalties in the case. It highlighted the distinction between the conditions for penalties under the two sub-rules, emphasizing the absence of a specific knowledge requirement in Rule 26(2). The Tribunal's decision was based on a strict interpretation of the rules and relevant legal precedents, ensuring that penalties were imposed in accordance with the statutory framework governing excise duties and CENVAT credit.

In conclusion, the Tribunal partially allowed the appeal by modifying the penalty imposed on the appellant under Rule 26(2) to ?5.00 lakhs, considering the gravity of the fraudulent activities and the appellant's role in facilitating the wrongful availment of CENVAT credit. The judgment underscores the importance of strict adherence to excise rules and regulations to prevent misuse and fraudulent practices in the realm of indirect taxation.