Imposition of penalty for ineligible Cenvat credit and fictitious invoices reduced on proportionality grounds and recredit denied

Imposition of penalty under Rule 26(2) for use of fictitious invoices and availing ineligible Cenvat credit is examined; the appellate authority found the appellant involved with ineligible credit of Rs.12,42,017 but noted recredit was not allowed, making the original penalty disproportionate. The imposition of penalty was sustained in principle but reduced from Rs.4,00,000 to Rs.1,00,000 on proportionality grounds, resulting in a partial allowance of the appeal and disposal of the matter.

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Issues: Whether the penalty under Rule 26(2) of the Central Excise Rules, 2002 imposed for availing ineligible CENVAT credit of Rs. 12,42,017/- is sustainable and whether reduction of the penalty is warranted.

Analysis: Rule 26(2) provides for imposition of penalty for specified offences related to central excise. The adjudication found the appellant had availed ineligible credit of Rs. 12,42,017/- and did not allow re-credit of that amount. The adjudicating authority imposed a penalty of Rs. 4,00,000/-. The Tribunal examined proportionality by taking into account that the ineligible credit amount was not recredited and considered the gravity of the offence against the quantum of penalty. On that assessment, the Tribunal found the originally imposed penalty to be excessive and amenable to reduction in exercise of appellate discretion.

Conclusion: The penalty imposed under Rule 26(2) is reduced from Rs. 4,00,000/- to Rs. 1,00,000/-, and the appeal is partly allowed. This conclusion is in favour of the assessee to the extent of reduction of penalty.

Ratio Decidendi: Where an adjudication imposes a penalty under Rule 26(2) for availing ineligible CENVAT credit, the appellate authority may reduce the penalty if the original quantum is disproportionate to the gravity of the offence, having regard to factors such as non-availability of re-credit and the specific facts of the case.

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