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2019 (12) TMI 530 - HC - Central ExciseImposition of penalty u/r 26(2) of CER, 2002 - CENVAT Credit - the buyers had or were likely avail such credit of such duty under the provisions of the CENVAT Credit Rules, 2004 - the appellant had not only reversed the credit at the time of removal of the goods and again before the issue of SCN on the mistake being pointed out - It is contention of the revenue that having purchased the goods from the second stage dealer, the appellant ought not to have passed on input credit on the strength of a CENVATABLE excise invoice and therefore the appellant was liable to pay the penalty equivalent to the benefit that was available to the buyers on account of the invoice issued by the appellant. HELD THAT - The power to impose penalty under the provisions of the Central Excise Rules, 2002 is traceable to Section 37 of the Central Excise Act, 1944. As per Section 37 (3) of the said Act the central government can make rules to impose penalty of ₹ 5000 where no other penalties is provided under the Act - Under 37 (4) of the Central Excise Act, 1944, which is an exception to sub-clause (3), any manufacturer, producer or licensee of a warehouse can be made liable to a penalty not exceeding the duty leviable on such goods or ten thousand rupees, whichever is greater. It specifies specific instances for which Rules can be framed. From a reading of the above Sub-Sections to Section 37, it is evident that penalty under Rule 26 of Central Excise Rules, 2002 is traceable to power vested with the Rule making authority under Sub-clause (3) and not under Sub clause (4) of Section 37 of the Central Excise Act, 1944. Therefore, maximum penalty which can be imposed is only ₹ 5000/- under Rule 26 of the Central Excise Rules, 2002 - Even otherwise, the language adopted in Clause (ii) to Sub- Rule (2) to Rule 26 is clear. Any person, who issues any excise duty invoice without delivery of goods specified therein or abets making such invoice; or any other document or abets in making such document, on the basis of which the user of the said invoice or document is likely to take or has taken any in-eligible benefit under the Act or the rules made their under like claiming of Cenvat Credit under the Cenvat Credit Rules, 2004 or refund, such person shall be liable to a penalty not exceeding the amount of such benefit passed on or Five Thousand Rupees, which ever is greater. Section 7(5) of the said Act cannot be regarded as confiscatory. For the present case, it will suffice to state that the penalty under Rule 26(2)(ii), is relatable only to penalty under Section 37(3) of the Central Excise Act, 1944 and therefore, there is no scope to levy penalty above ₹ 5000 under Rule 26(2)(ii) of the Central Excise Rules, 2002 when read in harmony with Section 37(3) of the Central Excise Act, 1944 - the appellant has not committed any fraud. The appellant has also compensated the revenue for any perceived loss to the revenue. Rule 26(2) is intended only to target those manufacturers and dealers who create fictitious invoice/documents to enable a buyers to wrongly avail ineligible of Cenvat Credit without actual supply by them or removal of goods. The intention of the rule making authority under Rule 26 of Cenvat Credit Rules, 2004 is not to recover the amount more than once, ie. once from the person like the appellant who has purportedly passed on such ineligible credit wrongly and again from the buyer. Rule 14 can be pressed into service only against buyer who wrongly avails such ineligible credit. The power to recover the amount under Rule 14 of Cenvat Credit Rules, 2004 is not contemplated against persons like the appellant. It is also no where stated that the appellant had wrongly availed credit - Since the appellant has paid the duty/ Cenvat Credit twice, first at the time of removal of goods by issuing Central Excise invoice by debiting the Cenvat Credit Account and thereafter once again for the second time before issue of show cause notice together with interest, the imposition of penalty under Rule 26 of the Central Excise Rules, 2002, will have to be construed as excessive. The penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002 be reduced to a token penalty of ₹ 5,000/- in consonance with Section 37(3) of the Central Excise Act, 1944 - appeal allowed in part.
Issues Involved:
1. Imposition of penalty under Rule 26(2)(ii) of the Central Excise Rules, 2002. 2. Justification for the penalty amount equivalent to the Cenvat Credit passed on. 3. Interpretation of Rule 26 in light of Section 37 of the Central Excise Act, 1944. 4. Appellant's payment of duty and interest before the issuance of the Show Cause Notice. 5. Jurisdiction and authority to impose penalties. Detailed Analysis: 1. Imposition of Penalty under Rule 26(2)(ii) of the Central Excise Rules, 2002: The appellant contested the penalty imposed by the Asst Commissioner of Central Excise, which was affirmed by the Commissioner (Appeals) and upheld by the Tribunal. The penalty was equivalent to the amount of Cenvat Credit purportedly passed on to the buyers wrongly by the appellant. The appellant argued that the penalty was excessive and not justified, especially since they had paid the duty and interest before the Show Cause Notice was issued. 2. Justification for the Penalty Amount Equivalent to the Cenvat Credit Passed On: The appellant questioned whether the penalty equivalent to the duty passed on to the customers could be justified. The court observed that Rule 26(2)(ii) of the Central Excise Rules, 2002, allows for a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater. The court noted that the provision does not mandate the imposition of the maximum penalty in all circumstances and provides discretion to the adjudicating authority. 3. Interpretation of Rule 26 in Light of Section 37 of the Central Excise Act, 1944: The court analyzed Section 37 of the Central Excise Act, 1944, which empowers the Central Government to make rules for imposing penalties. Section 37(3) allows for a penalty not exceeding five thousand rupees where no other penalty is provided by the Act. The court concluded that the penalty under Rule 26 is traceable to Section 37(3) and, therefore, the maximum penalty that can be imposed is only ?5000. 4. Appellant's Payment of Duty and Interest Before the Issuance of the Show Cause Notice: The appellant had paid the duty amount along with interest before the issuance of the Show Cause Notice. The court observed that this payment was penal in nature and should have been considered by the authorities. The court held that the imposition of an additional penalty was excessive, given that the appellant had already compensated the revenue. 5. Jurisdiction and Authority to Impose Penalties: The court noted that the jurisdictional officer can issue a Show Cause Notice for imposing a penalty under Rule 26. However, the court emphasized that the penalty should be reasonable and not excessive. The court held that the imposition of a 100% penalty was excessive and reduced the penalty to a token amount of ?5000 in consonance with Section 37(3) of the Central Excise Act, 1944. Conclusion: The court partly allowed the appeal, reducing the penalty imposed on the appellant to ?5000. The court emphasized the need for a fair and reasonable approach in imposing penalties, considering the specific facts and circumstances of each case. The substantial questions of law were answered partly in favor of the appellant, and the connected Miscellaneous Petition was closed.
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