Rule 26 penalty cannot apply to mere wrongful Cenvat credit availment on bogus invoices by a director.

Rule 26 of the Central Excise Rules, 2002, as then in force, applied to a person dealing with excisable goods known or believed to be liable to confiscation, not to a director merely connected with wrongful Cenvat credit taken on bogus invoices. The later insertion of Rule 26(2) from 1-3-2007 covered issuance of invoices without delivery of goods and abetment, but did not extend to a person who only availed ineligible credit. Penalty for wrongful availment of Cenvat credit lay under Rule 15(2) of the Cenvat Credit Rules, 2004, and attached to the assessee who took the credit; penalty under Rule 26 against the director was not sustainable.

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Issues: Whether penalty could be imposed on the Director under Rule 26 of the Central Excise Rules, 2002 for wrongful availment of Cenvat credit on bogus invoices.

Analysis: Rule 26, as it stood during the relevant period, applied to a person who acquired possession of, or was concerned with, excisable goods known or believed to be liable to confiscation. The allegation here was not that the Director dealt with excisable goods liable to confiscation, but that Cenvat credit was wrongly availed on bogus invoices. The later insertion of Rule 26(2) from 1-3-2007 covered issuance of invoices without delivery of goods and abetment in such issue, but it did not extend to persons who merely took ineligible credit. Penalty for wrongful availment of Cenvat credit lay under Rule 15(2) of the Cenvat Credit Rules, 2004, and that liability attached to the assessee who availed the credit.

Conclusion: Penalty under Rule 26 was not sustainable against the Director and was set aside.

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