Penalty for bogus supplier credit denied under Section 11AC, but upheld for breach of CENVAT credit conditions

Penalty under Section 11AC of the Central Excise Act, 1944 was not attracted because the facts did not establish suppression, fraud, misdeclaration, or any connivance by the assessee in availing credit on invoices issued by bogus suppliers. Penalty was nevertheless justified under Rule 13(1) of the CENVAT Credit Rules, 2002 because the assessee failed to take the reasonable steps required for credit verification and thus breached the conditions for taking credit.

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Issues: Whether penalty was exigible under Section 11AC of the Central Excise Act, 1944 or only under Rule 13(1) of the CENVAT Credit Rules, 2002 for credit availed on invoices issued by non-existent or bogus suppliers.

Analysis: The Revenue did not bring evidence to show that the assessee had connived with the suppliers or had facilitated any fraud in the availment of credit. The facts did not establish suppression, fraud, or misdeclaration on the part of the assessee so as to attract penalty under Section 11AC. At the same time, the assessee had not taken the reasonable steps contemplated under Rule 7 of the CENVAT Credit Rules, 2002, and the availment of credit was in breach of the credit-taking conditions, warranting penalty under Rule 13(1).

Conclusion: Penalty under Section 11AC was not attracted, while penalty under Rule 13(1) of the CENVAT Credit Rules, 2002 was justified.

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