2025 (1) TMI 1252 - AT - Central Excise

Penalties u/r 26(2) of the Central Excise Rules 2002 - denial of certain Cenvat credit on the ground that the said credit was taken against the material which were never received by them or used by them for production of the finished goods - HELD THAT - Rule 26(2) was introduced by Notification No.8/2007-CE(NT) dated 01.03.2007. From the plain reading of the said notification it appears that Rule 26 as is existed prior to the said amendment was reframed at 26(1) and 26 (2) provided for imposition of penalties under the said Rule the provisions specified therein. The said rule being a separate new rule inserted could not have been said to be in respect of the persons covered by Rule 26 (1) which apparently was rule 26 prior to the existence prior to the date of insertion. The provisions of said rule 26 (2) could not have been invoked for the imposition of penalties on the persons whose offences were specified in terms of Rule 26. There is not even iota of allegation or evidence to show that appellants were concern with handling removing of any goods which were liable for confiscation. On the contrary the case against the appellants is that there were paying duties credit of which was being taken by M/s Accurate Meters Ltd. In the case of COMMISSIONER OF CENTRAL EXCISE CHANDIGARH VERSUS SURYA ISPAT UDYOG 2017 (4) TMI 1298 - CESTAT CHANDIGARH has held that penalty provision for facilitating others in taking credit or issuance of invoice without actual supply of material has been inserted w.e.f. 1-3-2007 by inserting sub-rule (2) of Rule 26 of Central Excise Rules with the issue of Notification No. 8/2007-C.E. (N.T.) dt. 1-3-2007 and during the relevant period there was no provision under law for imposition of penalty for issuance of invoices without actual supply of material. Conclusion - Penal provisions cannot be applied retrospectively unless explicitly stated in the statute. Rule 26(2) of the Central Excise Rules 2002 cannot be applied to conduct predating its enactment. Rule 25 requires specific involvement with goods liable for confiscation which was not demonstrated in this case. The duty paid goods could not have been held liable for confiscation as the basic ingredient for invoking Rule 25 are missing in the cases against the appellant. The penalties imposed under Rule 25 also set aside. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the penalties imposed under Rule 26(2) of the Central Excise Rules, 2002, were valid, given the period of the alleged contravention predates the introduction of this rule.

2. The applicability of Rule 25 of the Central Excise Rules, 2002, for imposing penalties on the appellants, particularly concerning the handling of goods liable for confiscation.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Penalties under Rule 26(2)

Relevant Legal Framework and Precedents: Rule 26(2) was introduced by Notification No.8/2007-CE(NT) dated 01.03.2007. The rule was not in existence during the period of the alleged contravention (2001-02 to 2003-04). The Tribunal referenced the Hon'ble Punjab & Haryana High Court decision in M/s Vee Kay Enterprises and M/s Mini Steel Traders, which held that penalties under rules not in existence during the relevant period are not imposable.

Court's Interpretation and Reasoning: The Tribunal noted that Rule 26(2) was a new provision and could not be retrospectively applied to conduct that occurred before its enactment. The Tribunal emphasized the legal principle that penal provisions do not have retrospective effect unless explicitly stated.

Key Evidence and Findings: The Tribunal found no evidence that the appellants were involved in actions that would invoke Rule 26(2), as the rule was not applicable during the relevant period.

Application of Law to Facts: The Tribunal determined that the penalties under Rule 26(2) were improperly applied as the rule was not in force during the period of the alleged infractions.

Treatment of Competing Arguments: The Tribunal considered the arguments from both the appellants and the revenue, ultimately siding with the appellants based on the legal principle against retroactive penalization.

Conclusions: The Tribunal concluded that the penalties under Rule 26(2) were not sustainable and set them aside.

2. Applicability of Rule 25 for Imposing Penalties

Relevant Legal Framework and Precedents: Rule 25 of the Central Excise Rules, 2002, provides for penalties related to goods liable for confiscation. The Tribunal referred to the case of M/s Surya Ispat Udyog, which clarified the applicability of Rule 25 in cases where no excisable goods were manufactured or produced.

Court's Interpretation and Reasoning: The Tribunal found that Rule 25 was specific to situations involving goods liable for confiscation. The Tribunal determined that there was no evidence or allegation that the appellants were involved in the handling or removal of such goods.

Key Evidence and Findings: The Tribunal noted the lack of evidence indicating the appellants' involvement with goods liable for confiscation. The appellants were accused of facilitating the taking of ineligible credit, not handling goods subject to confiscation.

Application of Law to Facts: The Tribunal applied Rule 25's criteria and found no basis for penalties, as the appellants were not involved with goods liable for confiscation.

Treatment of Competing Arguments: The Tribunal addressed the arguments regarding the applicability of Rule 25 and concluded that the rule did not apply to the appellants' actions.

Conclusions: The Tribunal set aside the penalties imposed under Rule 25, finding them unsupported by the facts and legal framework.

SIGNIFICANT HOLDINGS

Core Principles Established:

1. Penal provisions cannot be applied retrospectively unless explicitly stated in the statute.

2. Rule 26(2) of the Central Excise Rules, 2002, cannot be applied to conduct predating its enactment.

3. Rule 25 requires specific involvement with goods liable for confiscation, which was not demonstrated in this case.

Final Determinations on Each Issue:

The Tribunal allowed the appeals, setting aside the penalties imposed under both Rule 26(2) and Rule 25, due to the lack of applicability and evidence.

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