Penalty on Employee Director for Fraudulent Cenvat Credit Availment Overturned

The penalty imposed under Rule 15(1) of the Cenvat Credit Rules, 2004 on an employee Director of a Company for alleged fraudulent availment of Cenvat credit was set aside by the Tribunal. The Tribunal held that since the Company, not the individual appellant, availed the fraudulent credit, the penalty under Rule 15(1) was wrongly imposed. The decision was based on a previous ruling that personal penalties on company employees are not sustainable under Rule 15 of CCR, 2004. The issue of the timeliness of the show cause notice did not significantly impact the final decision.

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Issues involved:
The issues involved in the judgment are imposition of penalty under Rule 15(1) of Cenvat Credit Rules, 2004 on an employee Director of a Company for alleged fraudulent availment of Cenvat credit, and the contention regarding the timeliness of the show cause notice.

Imposition of Penalty under Rule 15(1) of Cenvat Credit Rules, 2004:
The appellant, an employee Director in the Company, was penalized for the alleged fraudulent availment of Cenvat credit by the Company. The penalty was imposed under Section 15(1) of the Cenvat Credit Rules, 2004, on the grounds that the appellant, being overall in-charge, was involved in the wrongful availment of credit. However, the Tribunal noted that Rule 15(1) specifies that a person shall be liable to penalty if they themselves avail Cenvat credit wrongly. Since the Company availed the fraudulent credit and not the appellant individually, the penalty under Rule 15(1) was deemed wrongly imposed. This interpretation was supported by a previous decision in the case of Mukesh Dani vs. CCE, Surat, where it was held that personal penalty on employees of a company is not sustainable under Rule 15 of CCR, 2004. Therefore, the Tribunal set aside the penalty imposed on the appellant, as he was merely an employee and not the beneficiary of the availed credit.

Timeliness of Show Cause Notice:
The appellant contended that the show cause notice was time-barred as it was not served in a timely manner. However, the judgment primarily focused on the issue of penalty imposition under Rule 15(1) of the Cenvat Credit Rules, 2004. The Tribunal did not delve into the timeliness aspect of the show cause notice in detail, as the decision to set aside the penalty was based on the incorrect application of the penalty provision rather than the procedural aspect of the notice. Therefore, the timeliness of the show cause notice did not play a significant role in the final decision of the Tribunal.

Separate Judgement by Judges:
No separate judgment was delivered by the judges in this case. The order was pronounced in the open court on 24.03.2023 by the Members of the Appellate Tribunal CESTAT Ahmedabad, Mr. Ramesh Nair (Member - Judicial) and Mr. C.L. Mahar (Member - Technical).

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