2024 (10) TMI 891 - AT - Central Excise

CESTAT sets aside penalty for CENVAT credit on fake invoices, finds Rule 26(2) didn't exist during relevant period

M/s Ruchi Infortech Systems Versus Commissioner of Central Excise and Service Tax, Chandigarh

CESTAT Chandigarh set aside penalty under Rule 26(2) of Central Excise Rules, 2002 imposed on appellant for allegedly availing CENVAT credit on fake ... Levy of penalty under Rule 26(2) of the Central Excise Rules, 2002 - CENVAT credit availed on the basis of fake CENVAT invoices issued by the units - HELD THAT:- This issue is no more res integra and the matter has attained finality by the decision of the Tribunal in the case of Principal Appellant and suppliers of the appellant in the case of M/s Neeru Enterprises [2019 (4) TMI 432 - CESTAT CHANDIGARH] wherein it has been held that Principal Appellant was receiving Menthol, Menthol Flakes and De-Mentholized Oil in its premises as raw materials from it suppliers i.e. J&K manufacturers and was consequentially manufacturing the finished goods and has rightly availed the CENVAT credit. Further, it is found that the demand for penalty would not arise if the demand against the Principal Appellant is not sustainable and in the present case, the demand against the Principal Appellant is itself set aside by this Tribunal holding that the impugned goods were actually received by the Principal Appellant supplied by the appellant and other J&K manufacturers. Further, the penalty under Rule 26(2) has been imposed whereas during the relevant period, the said Rule did not exist and the same came into existence w.e.f. 11.05.2007. It is found that once the penalty against the main appellant has been dropped, the penalty against the present appellant is not sustainable and moreover, the said Rule 26(2) was not in existence during the relevant period. The impugned order is set aside - Appeal allowed. Issues:- Confirmation of penalty under Rule 26(2) of the Central Excise Rules, 2002.- Allegations of fraudulent CENVAT credit availed by the Principal Appellant.- Validity of penalty imposed on the Appellant.- Consideration of documentary evidence and presumption in passing the impugned order.Analysis:1. The judgment involves the confirmation of a penalty under Rule 26(2) of the Central Excise Rules, 2002, against the Appellant. The Commissioner of Central Excise, Chandigarh, had confirmed the penalty of Rs.2,33,250/- in the impugned order dated 29.08.2018.2. The case revolved around allegations of fraudulent CENVAT credit availed by the Principal Appellant based on fake invoices issued by units in Jammu & Kashmir. Investigations revealed a scheme where crude menthol oil was routed through J&K to avail CENVAT credit, which was then utilized for payment of excise duty on domestic clearances.3. The Appellant challenged the impugned order, arguing that the proceedings were initiated based on investigations against the Principal Appellant, which were subsequently set aside by the Tribunal. The Appellant contended that sufficient records existed to prove the manufacturing of impugned goods after procurement of raw materials.4. The Tribunal considered previous decisions in similar cases and found that the issue had attained finality by holding that the Principal Appellant rightly availed CENVAT credit. Additionally, it was noted that the penalty under Rule 26(2) was imposed during a period when the rule was not in existence.5. Ultimately, the Tribunal held that once the penalty against the main appellant (Principal Appellant) was dropped, the penalty against the present appellant was not sustainable. The impugned order was set aside, and the appeal of the Appellant was allowed based on the lack of sustainability of the penalty and the non-existence of Rule 26(2) during the relevant period.6. The judgment highlights the importance of proper appreciation of facts and law in passing orders related to penalties under excise rules, emphasizing the need for concrete evidence and legal validity in such proceedings.