Cenvat credit fraud and penalties: inadmissible credit upheld, extended limitation sustained, but duplicate Rule 13(1) penalty was struck down.

Cenvat credit was held inadmissible where invoices were not backed by actual movement or receipt of duty-paid goods, as shown by record mismatches, lack of transport evidence, adverse verification reports, and statements that the alleged suppliers had not made the stated clearances. On those facts, the Tribunal upheld the duty and interest demand and sustained invocation of the extended period of limitation. It further held that a separate equal penalty under Rule 13(1) was not warranted once penalty under Section 11AC had already been imposed on the same fraudulent availment. The company's director's penalty was maintained because his involvement in the credit scheme was inferred from the transaction chain.

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Issues: (i) Whether the Cenvat credit taken on the impugned invoices was admissible and whether the extended period of limitation and duty demand were sustainable. (ii) Whether the separate penalty imposed under Rule 13(1) of the Cenvat Credit Rules, 2002 was sustainable, and whether the penalty on the director was justified.

Issue (i): Whether the Cenvat credit taken on the impugned invoices was admissible and whether the extended period of limitation and duty demand were sustainable.

Analysis: The record showed that the first-stage dealer issued invoices without corresponding movement of goods, supported by mismatch in dealer records, absence of credible transport evidence, adverse verification from sales tax and transport authorities, and statements showing that the alleged ship-breaking suppliers were not operating or had not effected the stated clearances. The appellant failed to rebut this material or establish receipt of the same duty-paid goods covered by the invoices. On these facts, the credit was treated as fraudulently availed, and the conduct also justified invocation of the extended period.

Conclusion: The demand of duty and interest was upheld, and the denial of Cenvat credit was sustained against the assessee.

Issue (ii): Whether the separate penalty imposed under Rule 13(1) of the Cenvat Credit Rules, 2002 was sustainable, and whether the penalty on the director was justified.

Analysis: The Tribunal held that once equal penalty had been imposed under Section 11AC of the Central Excise Act, 1944, an additional equal penalty under Rule 13(1) was not warranted on the same facts. However, since the fraudulent availment of credit by the company was established, the director's involvement in the scheme was inferred from the overall role in the transaction chain, so the penalty on him was maintained.

Conclusion: The penalty under Rule 13(1) was set aside, while the penalty on the director was sustained.

Final Conclusion: The company's appeal succeeded only to the limited extent of deletion of the separate Rule 13(1) penalty, while the remaining duty demand, interest, Section 11AC penalty, and the director's penalty were affirmed.

Ratio Decidendi: Cenvat credit is inadmissible where the evidence shows that the duty-paid goods covered by the invoices were not actually received, and a separate equal penalty cannot be imposed under Rule 13(1) when a penalty under Section 11AC has already been sustained on the same fraudulent availment.

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