Penalty for wrongful credit and invoice misconduct failed where jurisdiction and applicability of penal rules were not established.

Penalty under Rule 26 of the Central Excise Rules, 2002 and Rule 209A of the Central Excise Rules, 1944 was examined in relation to alleged wrongful credit availment and invoice-related misconduct at the Nasik factory. The penalty order, passed by the Commissioner, Indore, did not establish how the invoked penal provisions applied to the alleged issuance of invoices without goods, nor how jurisdiction existed to penalise conduct linked to another factory. The reasoning based on inadmissible credit and mens rea was found insufficient to support the penalty. The penalty was therefore held unsustainable and consequential relief followed.

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Issues: Whether penalty was sustainable on the assessee under Rule 26 of the Central Excise Rules, 2002 or Rule 209A of the Central Excise Rules, 1944 for alleged wrongful availment of credit and invoice-related misconduct, and whether the Commissioner, Indore had jurisdiction to impose such penalty for credit taken at the Nasik factory.

Analysis: The alleged conduct related to availment of credit at the assessee's Nasik factory, while the impugned penalty was imposed by the Commissioner of Central Excise, Indore. The order did not show how Rule 209A of the Central Excise Rules, 1944 or Rule 26 of the Central Excise Rules, 2002 covered the situation where the allegation was of issuance of invoices without accompanying goods, especially when the relevant penal provision under Rule 26 was stated to have come into force only later. The reasoning in the impugned order, based on inadmissible credit and mens rea, did not establish the jurisdictional basis or the applicability of the penal provisions invoked.

Conclusion: The penalty was held unsustainable and the appeal was allowed with consequential relief.

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