Penalty for wrongful CENVAT credit requires proved fraud or suppression with intent to evade duty, not conjecture.

Penalty under rule 13(2) of the CENVAT Credit Rules, 2002 read with section 11AC of the Central Excise Act, 1944 was held unavailable because the essential ingredients of fraud, wilful misstatement, collusion, suppression of facts, or intent to evade duty were not proved. The record showed, at most, inadequate invoice verification and an inference that the assessee facilitated irregular credit, but the authorities lacked solid evidence that the assessee was party to the fraud. As the finding of suppression rested on conjecture rather than material evidence, the harsher penal provision could not be applied and no substantial question of law arose.

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Issues: Whether penalty under rule 13(2) of the CENVAT Credit Rules, 2002 read with section 11AC of the Central Excise Act, 1944 could be sustained in the absence of evidence showing fraud, wilful misstatement, collusion, suppression of facts, or contravention with intention to evade duty.

Analysis: The finding of the appellate authorities was that the assessee had failed to verify the invoices properly and had thereby facilitated the fraud, but the material on record was insufficient to conclude that the assessee was a party to the fraud. It was also found that the conclusion of suppression of facts with intent to avail wrong credit rested on conjectures and surmises rather than solid evidence. Rule 13(2) applies only when wrongly taken or utilized CENVAT credit is attributable to fraud, wilful misstatement, collusion, suppression of facts, or similar contravention with intent to evade duty. Those preconditions were not established, and the concurrent factual findings were not shown to be perverse.

Conclusion: Penalty under rule 13(2) and section 11AC was not attracted, and the appeal failed for want of any substantial question of law.

Ratio Decidendi: The harsher penal provision for wrongful CENVAT credit can be invoked only on a proved foundation of fraud or suppression with intent to evade duty; absent such findings, the penalty cannot be imposed under section 11AC.

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