Supply-chain misrepresentation in Cenvat credit invoices attracts penalty, but enhancement was not justified on these facts.

Where a dealer issues invoices as a third-stage dealer while forwarding Cenvat credit on duty-paid goods, penalty is attracted under the Central Excise Rules if the dealer misrepresents its position in the supply chain. The Tribunal held that, because there was no dispute about the duty-paid nature of the goods, enhancement of penalty was not warranted on the facts. The lower penalty imposed by the Original Authority was therefore restored, and the enhanced penalties on the dealer and its authorised employee were set aside.

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Issues: Whether the enhanced penalties imposed on the appellants for issuing invoices as a third-stage dealer, in the absence of dispute about duty-paid nature of the goods, were sustainable.

Analysis: The appellants were a registered dealer and its authorised employee. The dispute arose because goods were procured from a second-stage dealer and supplied onward with Cenvat credit forwarding. The Tribunal followed its earlier view that, where there is no doubt about the duty-paid character of the goods but the dealer misrepresents itself as a second-stage dealer while acting as a third-stage dealer, penalty is attracted under the Central Excise Rules. On that reasoning, the appellate enhancement was not justified and the order of the Original Authority imposing the lower penalty was restored.

Conclusion: The enhanced penalty was set aside and the original penalty of Rs. 5,000/- on each appellant was restored.

Ratio Decidendi: A dealer who misrepresents its position in the supply chain and forwards invoices/Cenvat credit for duty-paid goods is liable to penalty under the Central Excise Rules, but the penalty cannot exceed the minimum penalty prescribed where the facts do not warrant enhancement.

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