2017 (5) TMI 560 - AT - Central Excise

Transporters not liable for penalties in Cenvat credit fraud case

The Appellate Tribunal ruled in favor of the transporters, finding that they were not liable for penalties under Rule 26 for their involvement in the ... Penalty u/r 26 - issue of fake invoices - the charge on the appellants is that they have issued LRs for transportation between ICD Tughlakabad to Nakoda Trading Corporation, Bhiwandi - Held that: - the act of the appellants does not cover u/r 26 for the reason that the appellants have neither dealt with any goods, which is liable for confiscation - the issuance of LRs does not fall under any offence under Central Excise law. The LR is not a duty paying document on the basis of which Cenvat Credit can be claimed - The issue of fraudulent availment of Cenvat Credit is related to the cenvatable invoice issued by Nakoda Trading Corporation, Bhiwandi to Rashtriya Metal Industries Ltd. Therefore, it cannot be said that even regarding the offence of fraudulent credit, the present appellants are involved - penalty set aside - appeal allowed - decided in favor of appellant. Issues:Fraudulent availment of Cenvat credit through issuance of lorry receipts (LRs) by transporters, Penalty under Rule 26 for involvement in transporting excisable goods, Applicability of Rule 26 on the issuance of LRs, Interpretation of Rule 26 in relation to confiscation of goods and Cenvat credit, Comparison of facts with previous judgments cited by Revenue.Analysis:1. The case involved the fraudulent availment of Cenvat credit by a company based on invoices issued by a dealer, with transporters and partners of a transport firm being accused of issuing lorry receipts (LRs) for the transportation of goods. Penalty was imposed under Rule 26 on the grounds that the LRs were issued, but the goods were not transported, leading to the fraudulent Cenvat credit.2. The appellant argued that as transporters, they only issued LRs for the transport of goods and were not involved in the fraudulent Cenvat credit availed by the company. They contended that issuing LRs between specific locations does not constitute an offense under Rule 26, as LRs are not cenvatable documents and they were not dealing with goods liable for confiscation.3. The Revenue, represented by the Superintendent, relied on various judgments to support their findings. The judgments cited included cases related to excise duty invoices, documents leading to ineligible benefits, and penalties for certain offenses under the Central Excise law.4. The presiding Member analyzed Rule 26, which specifies penalties for offenses related to excisable goods and issuance of documents leading to ineligible benefits. The Member concluded that the transporters issuing LRs did not fall under the purview of Rule 26, as they were not involved in dealing with goods liable for confiscation or in any offense under the Central Excise law.5. It was emphasized that the penalty under Rule 26 was linked to the fraudulent Cenvat credit availed by the company based on invoices, not the issuance of LRs by the transporters. The Member clarified that the LRs only indicated transportation between specific locations and were not related to the fraudulent credit availed through invoices.6. Consequently, the Member found no grounds to impose a penalty under Rule 26 on the transporters, as they were not directly involved in the fraudulent activities leading to the Cenvat credit. The impugned orders were set aside, and the appeals of the transporters were allowed based on the specific facts of the case, rendering the penalties unsustainable.This detailed analysis of the judgment highlights the key legal aspects, arguments presented by both parties, the interpretation of relevant rules, and the final decision reached by the Appellate Tribunal.