2025 (4) TMI 243 - AT - Central Excise

CESTAT sets aside penalty under Rule 26(1) for alleged wrongful Cenvat credit lacking corroborative evidence

Shri Jeetendra Bhutra Versus Commissioner of CGST & Central Excise, Daman

CESTAT Ahmedabad allowed the appeal against penalty under Rule 26(1) of Central Excise Rules, 2002 for alleged wrongful Cenvat credit availment. The ... Levy of penalty under the provision of sub-Rule (1) of Rule 26 of Central Excise Rules, 2002 - wrongful availment of Cenvat credit - corroborative evidences to support the allegations present or not - HELD THAT:- In the instant case there is no corroborative evidence to prove that the appellant himself was dealing with goods and involved in possessing, transporting, removing, depositing. keeping, concealing, selling or purchasing of excisable goods, knowingly that such goods were liable to confiscation. The contention of the appellant agreed upon that the allegation made in the show cause notice are based on assumption and presumption or suspicion. There is no evidence that the imported inputs shown in the bills of entry received by the appellant were not used in the manufacture of final product. The department has not disputed the correctness of the quantity manufactured by the appellant, recorded in their daily stock account/ production record. There is no allegation by the department regarding the financial flow back that against the diversion of imported inputs for which any cash payment was received by the appellant. The service tax payment in respect of transportation of goods also establish the transportation of goods. With all these undisputed facts, merely on the basis of the third party documents and RTO reports, it cannot be concluded that the inputs were not received by the appellant. Therefore, the facts are established that the appellant have received the inputs in their factory used in the manufacture of final product and same was cleared on payment of duty. In such circumstance the demand of Cenvat credit is clearly not sustainable. The Tribunal also held that in adjudication, the adjudicating authority is required to first examine the witness in chief and also to form an opinion that having regard to the facts and circumstances of the case, the statements of the witness are admissible in evidence. Thereafter, the witness is offered to be cross-examined. The Tribunal observed that in the matter learned Adjudicating Authority failed to do such exercise. Therefore, following the law laid down by Punjab & Haryana High Court in the case of Sukhwant Singh [1995 (3) TMI 468 - SUPREME COURT], it is held that none of the statements were admissible evidence in the present case and no Cenvat demand is sustainable on the basis of statements of persons. Conclusion - The penalty imposed on the appellant set aside, concluding that the allegations were not substantiated by evidence. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include: Whether the penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002, was justified and supported by evidence. Whether the appellant was involved in the wrongful availment of Cenvat credit by M/s ND Metal Industries Limited. The relevance and impact of previous tribunal decisions on the current appeal, particularly concerning the main appellant and other related parties.ISSUE-WISE DETAILED ANALYSIS1. Justification of Penalty under Rule 26 of Central Excise Rules, 2002- Relevant Legal Framework and Precedents: Rule 26 of the Central Excise Rules, 2002, stipulates penalties for individuals involved in dealing with excisable goods that are liable for confiscation. The rule requires proof beyond doubt of such involvement.- Court's Interpretation and Reasoning: The Tribunal found that the show cause notice did not provide cogent evidence proving that the appellant was involved in any activities warranting penal action under Rule 26. The allegations were primarily based on assumptions and lacked corroborative evidence.- Key Evidence and Findings: The appellant's statement acknowledged the unloading of goods at Bhiwandi, but there was no documentary evidence of further transportation to Daman. However, this alone was insufficient to establish culpability under Rule 26, as there was no evidence of the appellant's direct involvement in the alleged transactions.- Application of Law to Facts: The Tribunal applied Rule 26, emphasizing the need for concrete evidence of the appellant's involvement in the alleged offenses. The absence of such evidence led to the conclusion that the penalty was unjustified.- Treatment of Competing Arguments: The appellant's counsel argued the lack of evidence and the speculative nature of the allegations. The Tribunal agreed, noting the absence of any concrete evidence linking the appellant to the alleged wrongful activities.- Conclusions: The Tribunal concluded that the penalty imposed under Rule 26 was not supported by sufficient evidence and was therefore not sustainable.2. Involvement in Wrongful Availment of Cenvat Credit- Relevant Legal Framework and Precedents: The Cenvat credit rules require that credit is only availed for goods received and used in the manufacture of final products. Any diversion or improper documentation can lead to penalties.- Court's Interpretation and Reasoning: The Tribunal referenced previous decisions where the main appellant's case was set aside due to lack of evidence of goods diversion. This precedent was crucial in evaluating the appellant's involvement.- Key Evidence and Findings: The Tribunal noted that the Revenue failed to provide evidence of goods being diverted or sold in cash. The appellant was merely an employee with no evidence of personal gain from the alleged transactions.- Application of Law to Facts: The Tribunal applied the principles from previous decisions, emphasizing the lack of evidence of any diversion or improper availment of Cenvat credit by the appellant.- Treatment of Competing Arguments: The department's arguments were based on the appellant's statement and the alleged unloading of goods. However, the Tribunal found these insufficient to establish wrongful availment of credit.- Conclusions: The Tribunal concluded that the appellant was not involved in the wrongful availment of Cenvat credit, as there was no evidence to support such a claim.SIGNIFICANT HOLDINGS- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized that 'the show cause notice does not prove with cogent evidence that Shri Jeetendra Bhutra has committed any offence liable for penal action.'- Core Principles Established: The need for concrete and corroborative evidence in imposing penalties under Rule 26 of the Central Excise Rules, 2002, was reaffirmed. Speculative allegations without evidence are insufficient for penal action.- Final Determinations on Each Issue: The Tribunal set aside the penalty imposed on the appellant, concluding that the allegations were not substantiated by evidence. The appeal was allowed, and the impugned order imposing the penalty was overturned.