Penalty on invoice issuer for alleged no-supply of goods fails absent independent evidence beyond wrong Modvat credit

Penalty under Rule 173Q could not be sustained against an invoice issuer merely because the recipient had wrongly availed Modvat credit. The contemporaneous statement of the proprietor that goods were sold under the invoice remained unrebutted, and the Department did not produce the transporter's statement or other reliable evidence to show that no goods were supplied. On these facts, liability could not be fastened on the issuer by inference alone. The Commissioner (Appeals) was therefore correct in setting aside the penalty, and the Revenue's appeal failed.

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Issues: Whether penalty under Rule 173Q of the erstwhile Central Excise Rules, 1944 was sustainable against the invoice issuer for alleged non-supply of goods.

Analysis: The invoice recipient had wrongly availed Modvat credit, but that circumstance by itself was not sufficient to fasten penalty on the issuer. The record showed a contemporaneous statement by the proprietor asserting that the goods were sold under cover of the invoice, and that statement had not been rebutted. The Department also failed to secure the transporter's statement or otherwise establish, with reliable evidence, that the invoice had been issued without supply of inputs. Penalty could be imposed on the party who illegally availed credit, but not solely on another party on that basis alone.

Conclusion: Penalty under Rule 173Q was not warranted against the invoice issuer and the Commissioner (Appeals) was in vacating it. The Revenue's appeal failed.

Ratio Decidendi: A penalty for irregular availment of Modvat credit cannot be sustained against an invoice issuer unless independent evidence establishes that the invoice was issued without supply of goods.

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