Pre-amendment penalty for fake invoices without goods supply was not sustainable absent a specific statutory basis.

Penalty for issuing invoices without actual supply of goods was held inapplicable for the period before insertion of Rule 26(2) of the Central Excise Rules, 2002 on 01.03.2007. The HC noted that the specific penal provision covering such conduct was introduced only from that date, and the earlier provisions invoked by revenue did not extend to mere invoice issuance absent movement of goods. As the facts did not support treatment of the matter as one involving goods liable to confiscation, no statutory basis existed to sustain the penalty for the relevant pre-amendment period. The deletion of penalty was therefore upheld in favour of the assessee.

---

---

Issues: Whether penalty could be imposed on registered dealers for issuing invoices without actual supply of goods for the period prior to insertion of Rule 26(2) of the Central Excise Rules, 2002 on 01.03.2007.

Analysis: The appeals concerned dealers who had facilitated wrongful availing of CENVAT credit by issuing invoices without movement of goods. The Court noted that the penal provision specifically covering such conduct was inserted in Rule 26(2) only with effect from 01.03.2007 by Notification No. 8/2007-CE(NT). For the relevant period, the Court found that neither Rule 25(1)(b) nor the earlier provisions relied upon by the revenue covered mere issuance of invoices in the absence of actual goods, and the facts did not justify treating the case as one involving goods liable to confiscation. The Court followed its earlier view that penalty could not be imposed for such conduct before the amendment came into force.

Conclusion: Penalty was not leviable for the period prior to 01.03.2007, and the deletion of penalty was upheld in favour of the assessee.

Ratio Decidendi: A penal provision creating liability for issuing invoices without actual supply of goods cannot be applied to conduct occurring before its insertion, and penalty cannot be sustained in the absence of an applicable statutory basis for the relevant period.

---