2025 (8) TMI 1 - AT - Central Excise

Penalty under Rule 26 set aside for improper turnover assessment and lack of proof in Cenvat credit denial

M/s. Sri Rajalakshmi Packaging Versus The Commissioner of GST & Central Excise, Puducherry Commissionerate And Shri N. Saravanan, Managing Partner Versus The Commissioner of GST & Central Excise, Puducherry Commissionerate

CESTAT Chennai set aside the penalty imposed under Rule 26 on the Managing Partner for clearing goods without duty payment and registration, noting ... Levy of penalty under Rule 26 of the Central Excise Rules, 2002 on Managing Partner of the Appellant-firm - clearance of goods without payment of duty, without even Central Excise Registration and without following the procedure prescribed under the Central Excise Law - time limitation - Denial of Cenvat Credit of the duty paid on input, i.e. kraft paper. Levy of penalty under Rule 26 of the Central Excise Rules, 2002 on Managing Partner of the Appellant-firm - clearance of goods without payment of duty, without even Central Excise Registration and without following the procedure prescribed under the Central Excise Law - time limitation - HELD THAT:- It is an admitted position of law that the purposes of Direct Tax and Indirect Tax which operate on different platforms, are different and the requirements of maintaining accounts/books may thus differ. The only common factor, however, is the collection of tax as authorized by the relevant statute/s and it is undisputed that income reported for the purpose of income--tax may not attract Central Excise duty per se. Hence, the Central Excise Authority undertaking adjudication may call for details reported under Income Tax Act since the Central Excise Levy is on the manufacture or removal of the manufactured goods but not on the sales of the same. To treat the income so declared as turn--over for Central Excise law is perhaps not the correct approach and hence, the request of the Appellant for Cross--examination of the Central Excise authorities who had ignored the very basics and purpose of declaration of income, appears to us to be in order. This is because, when a Statutory Authority over--steps the boundary, it cannot be said that such an act was always permissible or authorized by law. Perhaps the officer who felt it proper to levy Central Excise duty on the income tax returns alone could justify the legality of the same in his cross examination. Denial of Cenvat Credit of the duty paid on input, i.e. kraft paper - HELD THAT:- From the reply to the SCN, there is a specific mention by the Appellant as to procuring the raw materials after paying appropriate excise duty under proper cenvatable invoice, the burden on the Appellant stood discharged and the onus would shift to the Revenue to disprove. The Adjudicating Authority therefore cannot simply assert without any verification or examination that the procurement of inputs is improper. By doing so, the officer has not discharged his statutory duties in the manner it was expected from him. In fact, the Appellant has even referred in its reply, to its earlier letter dated 02.03.2015 furnishing all the invoices for the years 2010––11 to 2014––15 but unfortunately, this plea also has failed to impress the Adjudicating Authority in any way. The impugned order has been passed in a haste and in an arbitrary manner which makes it difficult for us to sustain and hence, there are no hesitation in setting aside the same. In the interest of both the parties, it is deemed appropriate to remand the case back to the file of the Adjudicating Authority. However, since the Adjudicating Authority has never doubted the bonafide claim of the Appellant and the fact that he has applied the amended law to the earlier period, the allegation as to suppression that too, with an intention to evade duty does not arise and hence, the demand, if any, has to be worked only for the normal period. Appeal disposed off. ISSUES: Whether the demand of excise duty confirmed in the impugned order is correct, particularly when based solely on income tax and sales tax documents without other corroborative evidence'Whether the demand of duty is barred by limitation considering the period involved and the date of issuance of the Show Cause Notice'Whether denial of Cenvat Credit on inputs (kraft paper) was justified in light of statutory amendments and the evidence produced'Whether penalty under Rule 26 of the Central Excise Rules, 2002 is sustainable against the managing partner of the firm? RULINGS / HOLDINGS: The demand of excise duty confirmed solely on the basis of documents maintained under Income Tax and Sales Tax laws is unsustainable, as 'income reported for the purpose of income-tax may not attract Central Excise duty per se' and reliance on such documents without other evidence is improper.The demand is not hit by limitation only if suppression with intention to evade duty is established; however, the allegation of suppression with such intention 'does not arise' in the present case, and thus the demand must be limited to the normal period.The denial of Cenvat Credit was improper because the Adjudicating Authority failed to discharge the burden of disproving the Appellant's claim and incorrectly applied the amendment restricting credit period retrospectively; the Appellant had discharged its burden by producing proper cenvatable invoices.Penalty under Rule 26 of the Central Excise Rules, 2002 against the managing partner is deleted as there is 'no merit warranting levy of penalty' on him. RATIONALE: The Court applied the principle that Direct Tax and Indirect Tax operate on different platforms with distinct purposes and that 'Central Excise Levy is on the manufacture or removal of the manufactured goods but not on the sales of the same,' thereby rejecting the approach of treating income tax returns as turnover for excise duty.The legal framework includes Rule 4 of the Cenvat Credit Rules, 2004 and its amendment effective 01.09.2014, which restricts the period for availing credit to six months; the Court held that the amended rule cannot be applied retrospectively to periods prior to its commencement.The Court emphasized the statutory burden of proof on the Revenue to disprove the Appellant's claim of proper procurement of inputs, noting the Adjudicating Authority's failure to verify or examine the evidence properly.The decision reflects a doctrinal adherence to the principle that penalty and extended limitation apply only upon proof of suppression with intent to evade duty, and absent such proof, demands must be confined to the normal limitation period.