Penalty for Cenvat credit misuse held unsustainable where goods were received on duty-paid invoices and fraud was unproved.

Penalty under Section 11AC of the Central Excise Act, 1944, read with Rule 13 of the Cenvat Credit Rules, 2002 and Rules 25 and 26 of the Central Excise Rules, 2004, was held unsustainable where goods were received against duty-paid invoices, payment was made by account payee cheque, and the record showed transport documents and supplier confirmation of supply. In the absence of any allegation that the goods were not received, the ingredients of fraud or collusion were not established. Penalty was therefore not imposable, and the penalty orders were set aside in favour of the assessees.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 13 of the Cenvat Credit Rules, 2002 and Rules 25 and 26 of the Central Excise Rules, 2004 was sustainable where the assessees had received goods against duty-paid invoices, made payment through account payee cheques, and there was no allegation that the goods were not received.

Analysis: The assessees did not dispute reversal of credit with interest and sought only deletion of the penalties. The invoices were supported by transport documents and the suppliers admitted supply of goods along with the duty-paid invoices. In the absence of any allegation that the goods were not received, and in view of the record showing receipt of goods and use of documentary safeguards at the time of availing credit, the ingredients of fraud or collusion were not established.

Conclusion: Penalty was not imposable and the orders confirming penalty were liable to be set aside in favour of the assessees.

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