2017 (5) TMI 392 - AT - Central Excise

Penalty u/r 26 - whether the appellant Shri Milind Pires, Director of M/s.Surya Smelting Pvt. Ltd. is liable for penalty u/r 26 of CER, 2002 for the offence that the company M/s.Surya Smelting Pvt. Ltd. has availed fraudulent Cenvat credit on the invoices without receipt of inputs physically? - Held that - Rule 26 can be invoked only in case where a person is dealing with the goods which is liable for confiscation. In the present case, the fraudulent credit was availed without physical receipt of inputs. This fact itself make it clear that no goods was involved which was liable for confiscation. Therefore, the ingredients of Rule 26 does not get satisfied - in the present case it is not the case of the clandestine removal of the goods but non-receipt of the inputs and fraudulent availment of the credit without physical receipt of the inputs - the penalty upon the appellant imposed under Rule 26 will not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Whether the appellant, as the Director of a company, is liable for penalty under Rule 26 of Central Excise Rules, 2002 for fraudulent availing of Cenvat credit without physical receipt of inputs.

Analysis:
1. The appellant, as the Director of the company, was penalized under Rule 26 for fraudulent Cenvat credit availed by the company without physical receipt of inputs. The penalty was upheld by the Commissioner (Appeals), leading to the appeal before the tribunal.

2. The appellant's counsel argued that since no physical goods were involved in the fraudulent credit availing, the penalty under Rule 26 cannot be imposed. He cited judgments supporting his stance, emphasizing the absence of goods liable for confiscation in the case.

3. The Revenue contended that the appellant was actively involved in the fraudulent credit availing by the company, justifying the penalty under Rule 26. They referred to a judgment upheld by the Supreme Court to support their position.

4. The tribunal observed that the appellant was indeed involved in the fraudulent credit availing without physical receipt of inputs, a fact not in dispute. Rule 26 specifies penalties for dealing with goods liable for confiscation, which was absent in this case due to no physical receipt of inputs.

5. The tribunal noted that the judgments cited by the appellant's counsel supported dropping penalties under Rule 26 in similar cases. In contrast, the judgment referred to by the Revenue involved clandestine removal of goods, unlike the present case of non-receipt of inputs for availing credit.

6. Based on the analysis, the tribunal concluded that the penalty imposed on the appellant under Rule 26 was not sustainable. Therefore, the impugned order upholding the penalty was set aside, and the appeal was allowed.

This comprehensive analysis highlights the key arguments, legal interpretations, and precedents considered by the tribunal in deciding on the penalty under Rule 26 in the case of fraudulent Cenvat credit availing without physical receipt of inputs.