Invoice-based credit disputes: penalties on dealers and an authorised signatory were found unsustainable without proof of actual suppression.

Penalties on registered dealers for issuing invoices without actual supply of goods were not sustained because the Department failed to establish, on the record, that they knowingly passed on ineligible credit or that the alleged goods movement was suppressed. The dealers had duty-paying documents and banking-channel payments, and similar disputes had already been decided against the Revenue. A separate penalty on the authorised signatory was also held unnecessary where the unit itself had already been penalised, so the deletion of penalties was upheld.

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Issues: (i) whether penalties imposed on the registered dealers for issuance of invoices without actual supply of goods were sustainable under Rule 173Q of the erstwhile Central Excise Rules, 1944; (ii) whether a separate penalty on the authorised signatory of the main noticee was warranted when penalty had already been imposed on the unit under Section 11AC of the Central Excise Act, 1944.

Issue (i): whether penalties imposed on the registered dealers for issuance of invoices without actual supply of goods were sustainable under Rule 173Q of the erstwhile Central Excise Rules, 1944.

Analysis: The registered dealers were proceeded against on the footing that they had passed on credit through invoices, but the record showed that the transactions with the main unit were not disproved in the manner required to fasten penalty on them. The findings accepted that the dealers had received duty-paying documents, made payment through banking channels, and that the Department had not established receipt of alternative raw material or denied clearance of the final products by the purchaser. The order also noted that similar issues had already been decided against the Revenue in earlier cases involving the same class of dealers. On that basis, the penalty on the registered dealers was not justified.

Conclusion: The penalty on the registered dealers was rightly set aside.

Issue (ii): whether a separate penalty on the authorised signatory of the main noticee was warranted when penalty had already been imposed on the unit under Section 11AC of the Central Excise Act, 1944.

Analysis: The authorised signatory was an employee of the unit, and the unit itself had already been visited with penalty for the alleged evasion. In the circumstances of the case, a further individual penalty on the signatory was considered unnecessary.

Conclusion: The separate penalty on the authorised signatory was not warranted.

Final Conclusion: The Revenue failed to show any reason to disturb the Commissioner (Appeals)' order, and the appellate challenge to the deletion of penalties did not succeed.

Ratio Decidendi: Where the Department does not establish that registered dealers knowingly passed on ineligible credit by actual suppression of receipt or movement of goods, and the main noticee is already penalised, a separate penalty on the dealers or the authorised signatory is not sustainable merely on the basis of invoice-based transactions.

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