Appellate Tribunal reduces penalties for aiding in fraudulent cenvat credit invoices

The Appellate Tribunal CESTAT MUMBAI upheld penalties under Rule 26 of the Central Excise Rules, 2002 on appellants for aiding in fraudulent passing of cenvat credit invoices. While acknowledging the involvement of the appellants, including Minaz Gadhia, in the scheme, the Tribunal reduced the penalties due to the applicability of Rule 26(2) during the relevant period. Penalties for Minaz Gadhia and others were decreased. The Tribunal partially allowed the appeals, modifying the penalties imposed on the appellants. The judgment was delivered on 03/02/2017.

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Issues:
Imposition of penalty under Rule 26 on appellants for aiding and abetting in fraudulent passing of cenvat credit invoices.

Analysis:
The judgment by the Appellate Tribunal CESTAT MUMBAI, delivered by Member (Judicial), Shri Ramesh Nair, pertains to the imposition of penalties under Rule 26 of the Central Excise Rules, 2002 on various appellants involved in aiding and abetting the passing of fraudulent cenvat credit invoices. The first appellant, Minaz Gadhia, a director of a company engaged in supplying Bazaar scrap, was alleged to have aided in the issuance of invoices by a registered dealer, leading to fraudulent extension of cenvat credit. A penalty of Rs. 7 lakhs was imposed on Minaz Gadhia. The other appellants, Parmeshwari Steels, Kedarnath Dubey, and Pramod Singh, were also found to have knowingly aided in passing fraudulent cenvat credit, resulting in penalties of Rs. 7 lakhs, Rs. 2 lakhs, and Rs. 2 lakhs respectively.

The counsel for Minaz Gadhia argued that he was solely involved in the sale of Bazaar scrap and had no role in the issuance of fraudulent invoices by the registered dealer. It was contended that Minaz Gadhia should not be penalized under Rule 26 as he was not a beneficiary of the wrongful credit availment. Additionally, it was highlighted that Rule 26(2) was inserted post the period in question, and Minaz Gadhia did not have control over the registered dealer issuing the invoices. The revenue, represented by the Asstt. Commissioner, reiterated the lower authorities' findings, emphasizing Minaz Gadhia's active involvement in arranging invoices and monetary transactions, justifying the penalty imposition.

Upon review, the Tribunal acknowledged Minaz Gadhia's involvement in the fraudulent credit passing scheme and upheld the penalty imposition. However, considering the applicability of Rule 26(2) during the relevant period, the Tribunal reduced the penalties for Minaz Gadhia and the other appellants. The penalties for Minaz Gadhia were reduced from Rs. 2 lakhs to Rs. 1 lakh each for the respective appeals. Similarly, the penalties for Parmeshwari Steels, Kedarnath Dubey, and Pramod Singh were reduced from Rs. 7 lakhs, Rs. 2 lakhs, and Rs. 2 lakhs to Rs. 4 lakhs, Rs. 1 lakh, and Rs. 1 lakh respectively.

In conclusion, the Tribunal partially allowed the appeals, modifying the impugned order to reduce the penalties imposed on the appellants involved in aiding and abetting the fraudulent passing of cenvat credit invoices. The judgment was pronounced on 03/02/2017 by the Appellate Tribunal CESTAT MUMBAI.

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