2025 (7) TMI 1707 - AT - Central Excise

Penalty under Rule 26(1) and 26(2) CER 2002 not applicable without confiscation or proof of invoice fraud

Shri Vijay Kumar Sharma Versus Commissioner of C.E. -Kutch (Gandhidham) And Shri Vinod Kashyap Versus Commissioner of C.E. -Kutch (Gandhidham)

The CESTAT AHMEDABAD held that although the appellant company devised a scheme to avail inadmissible Cenvat credit through improper documents, the penalty ... Levy of penalty u/r 26 of CER, 2002 - availment of Cenvat Credit on own invoices without actual transfer of the material to the buyer - it is alleged that CR coils never left the premises of M/s. ISCL and only invoices were issued to facilitate availment of credit - violation of Rule 9 of the Cenvat Credit Rules, 2004 - HELD THAT:- Rule 9 specifies list of documents eligible for availment of Cenvat credit. However, where goods rejected by the buyer are received back in the factory of the manufacturer for remaking etc, Cenvat credit can be availed on own invoices. From the statements of Shri Vijay Kumar Sharma and Shri Vinod Kashyap (appellants in this case), it is clear that M/s. KEPL were not having any godown or storage place and were working from the premises of M/s ISCL. The goods manufactured on job work basis for M/s. KEPL, were directly dispatched by M/s ISCL on payment of duty. As M/s KEPL were not registered as dealer, they could not issue cenvatable invoices. The Accountant of M/s KEPL sitting in the premises of M/s ISCL was given blank signed invoices for issuance. In the backdrop of above factual position duly corroborated by the statements of the concerned persons, it is clear that M/s ISCL have devised a scheme to avail inadmissible Cenvat Credit, on the basis of documents which were not proper documents as per Rule 9 of the Cenvat Credit Rules, 2004. The show cause notice does not propose confiscation of the impugned goods and therefore, Rule 26(1) is not attracted in this case for imposing penalty on the appellants. For imposing penalty under Rule 26(2), essential ingredients are that the person should have issued excise duty invoice without delivery of goods specified therein or abets in making such invoice; or any other documents or abets in making such document on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made thereunder like Cenvat credit or refund etc. The Learned Adjudicating Authority has not elaborated as to how the present appellants fall under the criteria of Rule 26(2) for imposing penalty. Even, the statements of Shri Vijay Kumar Sharma and Shri Vinod Kashyap do not bring out their role in issuance of invoices or abetting in issuance of invoices/documents to facilitate the user of such invoices/documents to get ineligible benefits. Therefore, agreeing with the contention, both the appeals are allowed and the penalty imposed on the appellants are set aside. The impugned order is modified to the above extent. Appeal allowed. ISSUES: Whether Cenvat credit can be legitimately availed on own invoices issued by a manufacturer to a related job worker under Rule 9 of the Cenvat Credit Rules, 2004.Whether penalty under Rule 26 of the Central Excise Rules, 2002 is imposable on individuals (directors/officials) for alleged issuance or abetment in issuance of excise duty invoices without delivery of goods or for enabling ineligible Cenvat credit.Whether Rule 26(1) of the Central Excise Rules, 2002 applies in absence of confiscation proceedings against impugned goods.Whether the factual scenario of goods remaining within the premises of the manufacturer but invoiced as sold to a job worker constitutes a violation attracting penalty. RULINGS / HOLDINGS: On the admissibility of Cenvat credit, the Court found that the manufacturer availed credit on their own duty paying invoices issued for sale of inputs to a related job worker, but the goods never physically moved outside the manufacturer's premises, thus violating Rule 9 of the Cenvat Credit Rules, 2004, as the documents were 'not proper documents as per Rule 9'.Penalty under Rule 26(1) of the Central Excise Rules, 2002 cannot be imposed in the absence of confiscation proceedings against the excisable goods, since 'the show cause notice does not propose confiscation of the impugned goods and therefore, Rule 26(1) is not attracted'.Penalty under Rule 26(2) requires proof that the person 'issued an excise duty invoice without delivery of the goods specified therein or abets in making such invoice,' or similar documents enabling ineligible benefit; the adjudicating authority failed to demonstrate how the appellants fulfilled these criteria, and thus penalty under Rule 26(2) was not sustainable.The appellants' roles were not established as having issued or abetted issuance of invoices/documents to facilitate ineligible Cenvat credit; accordingly, penalty imposed on them under Rule 26 of the Central Excise Rules, 2002 was set aside. RATIONALE: The Court applied the provisions of Rule 9 of the Cenvat Credit Rules, 2004, which enumerates the documents on the basis of which Cenvat credit can be legitimately availed, emphasizing that only proper invoices issued by registered manufacturers or importers qualify.It distinguished cases where manufacturers' own invoices are accepted for Cenvat credit, noting that such acceptance generally applies to goods rejected by buyers and returned for remaking, which was not the factual scenario here.The Court referred to Rule 26 of the Central Excise Rules, 2002, which penalizes persons concerned with excisable goods liable to confiscation or issuance of false invoices/documents leading to ineligible benefits, and clarified the necessity of establishing the appellants' direct involvement in such acts.The Court noted the absence of confiscation proceedings and insufficient evidence linking appellants to issuance or abetment of improper invoices, leading to a doctrinal application that penalty under Rule 26 requires concrete proof of culpability in the specific acts enumerated therein.There was no dissent or doctrinal shift; the ruling adhered to established statutory interpretation and precedent emphasizing strict compliance with procedural and substantive requirements for Cenvat credit and penalty imposition.