2024 (12) TMI 790 - AT - Central Excise

Penalty for Inadvertent Cenvat Credit Reversal Set Aside Due to Voluntary Action and Insolvency Process Impact.

The Tribunal set aside the penalty imposed under Rule 26 of the Central Excise Rules, 2002, on the employee for inadvertent Cenvat credit availment, ... Levy of penalty under Rule 26 of the Central Excise Rules, 2002 (“CER”) read with Rule 15(1) of the CENVAT Credit Rules, 2004 - Cenvat credit of the service tax was inadvertently claimed by the company which related to its spinning unit on 31.03.2008,which was subsequently voluntarily reversed without utilization and well before issuance of the show cause notice - HELD THAT:- On scrutiny of the facts related to the wrong availment of the credit by the company it is observed that the company M/s. Alok Industries Limited has inadvertently availed the Cenvat credit which is meant for their own other unit. In this case there cannot be any malafide intention for availament of such credit because the same was available to the same company though in different unit, therefore, there is no gain or loss to the company M/s. Alok Industries Ltd. The company on pointing out an error by the audit party reversed the entire credit voluntarily, therefore, in this fact when the company itself cannot be alleged any malafide intention its employee remotely cannot be implicated for penal action. Considering the overall facts of the present case and nature of alleged offence the personal penalty under Rule 26 cannot be imposed, therefore, the penalty is set aside - Appeal is allowed. Issues:1. Imposition of penalty under Rule 26 of the Central Excise Rules, 2002 read with Rule 15(1) of the CENVAT Credit Rules, 2004 on the employee of a company for inadvertent availment of Cenvat credit.2. Interpretation of Rule 26 in the context of liability for confiscation under the Act or the Central Excise Rules.3. Impact of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 on prior demands against a company.Analysis:Issue 1: Imposition of penalty for inadvertent availment of Cenvat creditThe appeal was filed against the imposition of a penalty of Rs.2,00,000 under Rule 26 of the Central Excise Rules, 2002, on an employee of a company for inadvertently claiming Cenvat credit related to a spinning unit. The company voluntarily reversed the credit before any show cause notice was issued. The appellant argued that the nature of the alleged offense did not warrant penal action as the credit was reversed without dispute. Citing previous judgments, the appellant contended that the penalty was unjustified.Issue 2: Interpretation of Rule 26The appellant argued that the penalty under Rule 26 is applicable only if excisable goods are liable for confiscation under the Act or the Central Excise Rules. Since no contravention of the Act or Rules was alleged against the appellant, invoking Rule 26 was deemed misconceived. The appellant relied on various judgments to support this interpretation of the rule and argued that the penalty should be set aside.Issue 3: Impact of corporate insolvency resolution processThe company in question had undergone corporate insolvency resolution under the Insolvency and Bankruptcy Code, 2016, and the Resolution Plan was approved by the National Company Law Tribunal. Citing a Supreme Court judgment and the extinguishment of prior demands against the company, the appellant argued that no demand, interest, or penalty could be recovered from the company. The Tribunal had previously disposed of appeals related to the impugned order as infructuous due to the corporate insolvency resolution process.In the final analysis, the Tribunal considered the inadvertent nature of the Cenvat credit availment, the voluntary reversal by the company, and the absence of malafide intention. The Tribunal concluded that the penalty under Rule 26 could not be imposed on the employee, setting it aside and allowing the appeal.