CENVAT credit on non-existent suppliers can attract mandatory penalty where verification safeguards are ignored.

Penalty under Section 11AC of the Central Excise Act was considered in the context of CENVAT credit taken on invoices issued by non-existent suppliers. The assessee failed to comply with the precautionary requirements under Rule 7(2) and Rule 7(4) of the CENVAT Credit Rules, 2002 and did not produce evidence that the suppliers existed. On that basis, the availment of credit without verification was treated as suppression of material facts, making the mandatory penalty provision applicable and supporting a 100% penalty outcome.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was attracted where CENVAT credit was availed on invoices issued by non-existent suppliers without complying with the precautionary requirements under Rule 7(2) and Rule 7(4) of the CENVAT Credit Rules, 2002.

Analysis: The assessee did not take the precautions required under Rule 7(2) and Rule 7(4) of the CENVAT Credit Rules, 2002 and failed to produce evidence showing that the suppliers were existing. In such circumstances, the availment of credit without verification amounted to suppression of material facts regarding non-verification and non-compliance with the Rules. On that basis, the mandatory penalty provision was held to be attracted, and the Revenue's reliance on the cited precedent was accepted.

Conclusion: Penalty under Section 11AC was held to be imposable and the Revenue's appeal was allowed, with the penalty enhanced to 100% of the duty amount.

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