2016 (11) TMI 473 - AT - Central Excise

Imposition of penalty u/r 25, 26 and 27 read with Section 11AC - forged invoices - issue of invoices without supply of material - Held that - the penalty has been imposed under Rule 25 read with Section 11AC without determination of duty which is not permissible in law. As in this case no duty was determined as per the provisions of Section 11A(10) which is required to be determined if penalty under Section 11AC is to be imposed. Further, I also find that the Revenue has not investigated the case properly and no evidence has been brought on record which can prove the allegation that the appellant was issuing cenvatable invoices without the supply of material. The present case is not a case of non-payment, short-payment or non-levy or short-levy of duty, therefore the imposition of penalty under Rule 25 read with Section 11AC of Central Excise Act is not warranted. No doubt Shri A. P. Venkateshwaran who is the Director of Finance and Accounts has admitted in his statement that there is mixing of various grades and also admitted the shortage of quantity but has stated that the same was not with intent to evade payment of duty. Therefore, keeping in view the facts, I am of the opinion that the imposition of penalty under Rule 25 read with Section 11AC is not imposable in the absence of determination of duty. Therefore I set aside the penalty under Rule 25. Since the Director has admitted that they have not maintained the record properly and there is inter mixing of material of one grade with another grade and they have not been able to establish one to one correlation of the invoices and this shows that they have not maintained proper statutory records and therefore they are liable to be penalised under Rule 27 instead of Rule 25 & 26. Therefore, I impose penalty of ₹ 5,000/- each on both the appellant under Rule 27 and set aside the penalty imposed under Rule 25 on the appellant No.1 i.e. Tulsyan NEC Ltd. and under Rule 26 on A.P. Venkateshwaran, Director, therefore both the appeals are disposed of accordingly.

Summary

Issues Involved:
1. Imposition of penalty under Rule 25 read with Section 11AC without determination of duty.
2. Allegations of fraudulent passing of CENVAT credit without physical supply of materials.
3. Proper maintenance of statutory records and inter-mixing of grades leading to penalty under Rule 27.

Analysis:

Issue 1: Imposition of penalty under Rule 25 read with Section 11AC without determination of duty:
The appellant challenged the imposition of penalty under Rule 25 without the determination of duty, arguing that Section 11AC requires the determination of demand of duty before imposing penalties. The appellant relied on legal precedents emphasizing the necessity of mens rea for penalty imposition in cases of deliberate evasion. The Tribunal agreed, highlighting the lack of concrete evidence to prove fraudulent passing of duty credit. The Tribunal concluded that without the determination of duty under Section 11A(10), the penalty under Rule 25 read with Section 11AC was unwarranted. The penalty under Rule 25 was set aside based on the absence of duty determination.

Issue 2: Allegations of fraudulent passing of CENVAT credit without physical supply of materials:
The Department alleged that the appellant passed CENVAT credit fraudulently without physical supply of materials, leading to penalties. The appellant refuted these allegations, stating that no investigation was conducted to prove fraudulent passing of duty credit. The Tribunal noted the lack of evidence to substantiate the allegations, emphasizing that the case did not involve non-payment, short-payment, or non-levy of duty. The Tribunal concluded that penalties under Rule 25 read with Section 11AC were not justified due to the absence of duty determination and insufficient investigation. The penalties were set aside, and the case was disposed of accordingly.

Issue 3: Proper maintenance of statutory records and inter-mixing of grades leading to penalty under Rule 27:
The Department argued that the appellant's failure to maintain proper records and inter-mixing of grades warranted penalties under Rule 27. The Tribunal acknowledged the admissions regarding inter-mixing of grades and shortage of stock but noted that there was no intent to evade duty. Consequently, the Tribunal imposed penalties under Rule 27 for improper maintenance of statutory records, setting aside penalties imposed under Rule 25 and Rule 26. The penalties of &8377; 5,000 each were imposed on both the appellant and the Director under Rule 27, concluding the appeals in this regard.

In summary, the Tribunal set aside penalties imposed under Rule 25 read with Section 11AC due to the absence of duty determination and insufficient evidence of fraudulent passing of duty credit. Penalties were imposed under Rule 27 for improper maintenance of statutory records and inter-mixing of grades, based on admissions made by the appellant and Director. The judgment emphasized the importance of proper investigation and evidence before imposing penalties in excise matters.