2022 (3) TMI 100 - AT - Central Excise

Appeal outcomes: Cenvat credit disallowed, penalties upheld for one, penalty set aside for lack of 'mens rea.'

M/s. Sangli Aluminium Extrusions Pvt Ltd and Ravindra Jethalal Cheda Versus Commissioner of CGST, Kolhapur

The appeal filed by Appellant 1 (Company) was dismissed, upholding the disallowance of Cenvat credit and the penalties imposed. The appeal filed by ... Levy of penalty on Director u/r 26 of CER - involvement of the director of the appellants in clandestine activities or not - wrong availment of CENVAT Credit - HELD THAT:- Shri Niten Maru, Director of Appellant 1 in his statement dated 09.03.2010 inter alia stated that he did his chartered accountancy in 2004. When he was asked to confirm the receipt of imported scrap under the said Bills of Entry, by way of any independent documents such as copy of any octroi receipt of any Municipal corporation, he stated that he did not have any such evidence but would produce if available by 12/3/2010. He did not appear thereafter and informed that Appellant 2 would represent them - Appellant 2 could not give any independent evidence of receipt of the goods corresponding to the said two B.E., no weighment slip was produced no details such as ledgers for freight payments, CHA and Octroi payments were produce, LRs pertaining to the above consignments were not produced. When he was asked to comment on the admission of the transporter of having diverted the consignments of aluminum scrap to Ahmednagar he replied that he did not know. Appellant 1 has admitted to non receipt of the goods in their premises and have reversed the credit. Nothing contrary to establish the receipt of the said goods imported by these two bill of entries have been produced by the appellant with their appeal or during the course of hearing before me, hence there are no reason to differ with the impugned order to the extent it pertains the Appellant 1. Penalty imposed on Appellant 2 - HELD THAT:- There are not much reasoning has been assigned by the said order, to show that Appellant 2 was having mens rea or direct involvement for invocation of Rule 26 - Since the impugned order fails to establish the ingredient of “mens rea” on the part of the Appellant 2 who was otherwise performing their duties as employee of the company, the penalties imposed on the appellant 2, cannot be upheld. The appeal filed by the Appellant 1 is dismissed - appeal filed by the Appellant 2 is allowed. Issues Involved:1. Legality of imposition of penalty on the Director under Rule 26 of Central Excise Rules, 2002.2. Disallowance of Cenvat credit amounting to Rs. 3,19,990/-.3. Imposition of interest and penalty on the company under Section 11AC of the Central Excise Act, 1944.4. Confiscation of inputs and final products and imposition of fines.5. Penalties on other co-noticees under Rule 26 of the Central Excise Rules, 2002.Detailed Analysis:1. Legality of Imposition of Penalty on the Director under Rule 26 of Central Excise Rules, 2002:The Commissioner (Appeal) confirmed the penalty of Rs. 50,000/- imposed on the Director under Rule 26, citing the director's involvement in clandestine activities. However, the Tribunal found that the impugned order did not establish 'mens rea' or direct involvement of the Director. The Tribunal referred to precedents from the Karnataka High Court and Punjab and Haryana High Court, which emphasized the necessity of proving 'mens rea' for imposing penalties under Rule 26. Consequently, the Tribunal set aside the penalty imposed on the Director, stating that the impugned order failed to establish the required intent or knowledge for liability under Rule 26.2. Disallowance of Cenvat Credit Amounting to Rs. 3,19,990/-:The Assistant Commissioner disallowed Cenvat credit of Rs. 3,19,990/- under Rule 14 of Cenvat Credit Rules, 2004, read with Section 11A(1) of the Central Excise Act, 1944. The Tribunal upheld this disallowance, noting that the Appellant 1 admitted to the non-receipt of goods and reversed the credit. The Tribunal found no reason to differ with the impugned order as Appellant 1 failed to produce any evidence to establish the receipt of goods corresponding to the disputed bills of entry.3. Imposition of Interest and Penalty on the Company under Section 11AC of the Central Excise Act, 1944:The Assistant Commissioner imposed a penalty of Rs. 3,19,990/- under Section 11AC, with a provision for reduction if the amount was paid within 30 days. The Tribunal upheld this penalty, as Appellant 1 admitted to the non-receipt of goods and reversed the credit. The Tribunal found no grounds to challenge the impugned order regarding the penalty imposed on Appellant 1.4. Confiscation of Inputs and Final Products and Imposition of Fines:The Commissioner (Appeal) set aside the confiscation of inputs and final products and the consequent redemption fines of Rs. 3,19,990/- each. The Tribunal did not explicitly address this issue in the final order, focusing primarily on the penalties and disallowance of credit. Therefore, the partial relief granted by the Commissioner (Appeal) regarding confiscation and fines remained unchallenged.5. Penalties on Other Co-noticees under Rule 26 of the Central Excise Rules, 2002:The Assistant Commissioner imposed penalties of Rs. 50,000/- each on other co-noticees, including M/s Nikhil Shipping Agency, its partner, M/s Lakshya Container Carriers, and its partner. The Tribunal did not specifically address these penalties in the final order, focusing instead on the penalties imposed on the Director and the disallowance of credit. Therefore, the penalties on other co-noticees remained unaffected by the Tribunal's decision.Conclusion:- The appeal filed by Appellant 1 (Company) was dismissed, upholding the disallowance of Cenvat credit and the penalties imposed.- The appeal filed by Appellant 2 (Director) was allowed, setting aside the penalty imposed under Rule 26 due to the lack of established 'mens rea'.- The partial relief granted by the Commissioner (Appeal) regarding confiscation and fines was not challenged and thus remained in effect.- Penalties on other co-noticees under Rule 26 were not specifically addressed and thus remained unaffected.