Cenvat credit penalty: absence of fraud or suppression bars Section 11AC, but Rule 13(1) penalty can still apply.

Penalty under Section 11AC of the Central Excise Act, 1944 was not attracted because the Revenue did not establish connivance, suppression of facts, fraud, or wilful misstatement in relation to bogus invoices. The record showed only that the assessee failed to take the reasonable steps required under the Cenvat Credit Rules, 2002 to verify payment of duty on inputs. On that basis, the contravention was treated as a breach of the credit rules, and penalty under Rule 13(1) of the Cenvat Credit Rules, 2002 was sustained.

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Issues: Whether penalty for wrong availment of Cenvat credit on the strength of bogus invoices could be sustained under Rule 13(1) of the Cenvat Credit Rules, 2002 instead of Section 11AC of the Central Excise Act, 1944, in the absence of evidence of connivance, suppression of facts, fraud, or misdeclaration.

Analysis: The Revenue failed to produce evidence showing that the respondents had connived with the suppliers or knowingly availed credit on fake invoices. The material on record was sufficient only to show that the respondents had not taken the reasonable steps contemplated by the Cenvat Credit Rules to ensure that duty had been paid on the inputs. The ingredients necessary to invoke penalty under Section 11AC, namely suppression of facts, fraud, or wilful misstatement, were not established. The Commissioner (Appeals) therefore treated the matter as one of contravention of the credit rules and sustained penalty under Rule 13(1).

Conclusion: Penalty under Section 11AC was not attracted, and penalty under Rule 13(1) of the Cenvat Credit Rules, 2002 was rightly imposed.

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