2009 (8) TMI 349 - HC - Central Excise

Supreme Court rules penalties require proof of deliberate deception in Cenvat Credit case

The Supreme Court dismissed the revenue's appeal against the setting aside of a penalty under rule 13 of the Cenvat Credit Rules, 2002. The case involved ... Cenvat Credit- Classification and penalty- The assessee was engaged in the manufacture of motor vehicles. It has availed Cenvat credit in respect of Naphta, which was used as fuel in the manufacture of electricity to be used captively. Some portion of the so generated electricity was supplied by the assessee to its vendors, who were independent manufacturers. The Commissioner issued a show cause notice to the assessee for wrongly availing Cenvat Credit inasmuch as Naptha used in generation of electricity was not used within the factory of production and did not fall in the definition of input. The Tribunal set-aside the penalty. Held that- the revenue could not point out any finding of availing Cenvat Credit by playing fraud, willful misstatement, collusion, or suppression of facts. Thus in the absence of such finding, the imposition of penalty is not automatic and cannot be levied. The impugned appeal was liable to be dismissed. Issues:Interpretation of penalty provisions under rule 13 of the Cenvat Credit Rules, 2002.Analysis:1. The case involved an appeal by the revenue against the setting aside of a penalty imposed under rule 13 of the Cenvat Credit Rules, 2002. The respondent had availed Cenvat credit on Naptha used for generating electricity supplied to joint ventures and vendors. The Commissioner disallowed the credit and imposed a penalty, which was modified by the Tribunal. The issue was whether penalty provisions were applicable in this case.2. The provisions of rule 13 of the Rules deal with confiscation and penalty for wrongly availing Cenvat credit. Sub-rules (1) and (2) specify conditions for confiscation and penalties, including instances of fraud or intentional evasion of duty. The Supreme Court's rulings in similar cases clarified that penalties under section 11AC require deliberate deception with intent to evade duty.3. In this case, the revenue failed to establish any fraud or intentional evasion in availing the Cenvat credit. The absence of such findings meant that the penalty provisions could not be automatically applied. The Tribunal's order was based on the lack of evidence supporting fraud or intentional evasion, leading to the dismissal of the appeals.4. The judgment emphasized the necessity of specific findings of fraud or intentional evasion to impose penalties under rule 13. Without such evidence, penalties cannot be levied automatically. The Court held that the appeal lacked merit and dismissed both appeals accordingly.5. The ruling highlighted the importance of proving deliberate deception or intention to evade duty to invoke penalty provisions. The absence of such proof in this case led to the rejection of the appeals. The judgment clarified the stringent requirements for imposing penalties under rule 13 of the Cenvat Credit Rules, 2002.