2024 (9) TMI 615 - AT - Central Excise

Denial of CENVAT Credit availed by the company - steel items like M.S. angles, channels, flats etc - penalty under Rule 26 of Central Excise Rules, 2002 on the Director of company - HELD THAT - Tthe penalty on the appellant under Rule 26 was imposed consequent to the confirmation of demand of Cenvat credit against the company M/s. Raj Rayon Ltd. From the plain reading of the rule 26, we find that the penalty under the said rule can be imposed either under sub- rule (1) or sub rule (2). Sub rule (1) deal with the act of the person such as transporting, removing, depositing, keeping , concealing, selling and purchasing, or in any other manner deals with , any excisable goods which he knows and has reason to believe are liable to confiscation under the Act or these rules. As per sub rule 2 (i) any person who issues an excise duty invoice without delivery of the goods specified therein or abets in making such invoice or any other documents or abets in making such documents on the basis of which user of such invoice or document is likely to take or has taken any ineligible benefit under act or the rules made thereunder like claiming of Cenvat credit under Cenvat Credit Rules, 2004. In the present case as per the operating order reproduced above, it can be seen that no goods have been confiscated, therefore, in absence of proposal/confirmation of confiscation of goods, penalty under Rule 26 (1) cannot be imposed. It is also found that in the matter of case against the company RAJ RAYON LTD VERSUS C.C.E S.T. -SILVASA 2022 (7) TMI 1538 - CESTAT AHMEDABAD the issue involved is interpretation of Cenvat Credit Rules on admissibility of inputs. This issue has been considered in catena of judgments whereby the Cenvat credit was allowed on the material in question such as steel structure goods used for fabrication of structure of plants and machinery, therefore, though we are not deciding merit of the case but considering the facts even when the case of the company M/s. Raj Rayon Ltd is prima- facie strong in their favour, for this reason also penalty under Rule 26 is not sustainable. The department could not make out any case to impose penalty under Rule 26 on the appellant Shri Gouri Shankar Poddar, Director of M/s. Raj Rayon Ltd. The penalty is set aside - Appeal is allowed.

Summary

Issues:
1. Denial of CENVAT credit availed by the company.
2. Imposition of personal penalty on the director under Rule 26 of Central Excise Rules, 2002.
3. Appeal against the order dated 26.04.2017.

Analysis:

Issue 1: Denial of CENVAT Credit
The company was issued a show cause notice proposing to deny CENVAT credit availed on steel items and inputs used in immovable structures outside the factory. The Ld. Commissioner confirmed the demand of CENVAT credit and imposed a penalty on the Appellant. The company and the Appellant filed appeals before the Tribunal challenging the order.

Issue 2: Imposition of Personal Penalty
The Appellant argued that since there was no proposal for confiscation of goods in the show cause notice or the order, the penalty under Rule 26 could not be imposed. The Appellant also contended that the CENVAT credit was admissible based on various judgments, and therefore, the penalty was unjustified. The Tribunal noted that the penalty was imposed based on the confirmation of demand against the company, but since no goods were confiscated, Rule 26 could not be invoked. Additionally, the Tribunal found that the judgments cited by the Appellant supported the admissibility of CENVAT credit on similar materials, making the penalty unsustainable.

Issue 3: Appeal Against the Order
The Tribunal, after considering the submissions and perusing the records, set aside the penalty imposed on the Appellant. The Tribunal concluded that the department failed to establish a case for imposing penalty under Rule 26 on the Appellant, as the goods were not confiscated, and the CENVAT credit issue was supported by relevant judgments. Therefore, the appeal was allowed with consequential relief, and the penalty was overturned.

This judgment highlights the importance of establishing grounds for imposing penalties under specific rules and the relevance of legal precedents in determining the admissibility of credits. The Tribunal's decision focused on the lack of confiscation of goods and the applicability of previous judgments in supporting the Appellant's position regarding the CENVAT credit.