2026 (2) TMI 395 - AT - Central Excise

Issuance of excise invoices without delivery: penalty liability upheld but tribunal reduced penalties based on proportionality and mitigation

Issuance of excise-duty invoices without physical delivery was held to attract a cenvat credit penalty; liability of the invoice issuer arises ... Issuance of excise duty invoice without delivery of goods - Penalty under Rule 26(2) of the Central Excise Rules, 2002 - Amount of such benefit as the outer limit of penalty - Invoice without delivery - Liability of issuer irrespective of actual availment of credit by user - Discretion to moderate quantum of penalty having regard to gravity and mitigating factors - Whether the penalties imposed are tenable in law and commensurate with the role of the appellants in the facts and circumstances of the case. - HELD THAT:- It is discernible from the impugned order that JM Trading corporation, a registered dealer, is found to have issued invoices without transportation of scrap. The Adjudicating authority has further found that they have admitted to having received 55% of Cenvat and 100% vat from their customers. The appellant has also conceded to the allegations and have requested leniency in so far as the penalty imposed is concerned. This Tribunal is of the considered view that viewed cumulatively, from the material placed on record, the finding of the Adjudicating Authority that the appellants have committed the violations attracting the penalty under Rule 26(2) of the Cenvat Credit penalty does not warrant any interference and deserves to be upheld. That said, as regards the penalty imposed, it is the firm opinion of the Tribunal that penalty cannot be imposed across the board at a uniform percentage, without evaluating the facts and circumstances governing the transactions involving the respective appellants and such an imposition has rendered the quantum of penalties determined in the impugned order untenable. J M Trading Corporation, Saravana Metal Corporation and SSK Iron and Steels Pvt Ltd, have submitted that they are not contesting the findings of the Ld. Adjudicating Authority, but have prayed for leniency stating that the penalties are excessive. Though fraud and justice do not go hand in hand, the test of quantity of penalty is the gravity of the violations. This Tribunal cannot lose sight of the fact that the number of instances the violation has occurred, the quantum of benefit sought to be passed on, whether the appellants are repeat violators etc are also germane to the decision on the quantum of penalty. Thus, this Tribunal is of the view that the penalties imposed on them are excessive and are not in proportion to the gravity of the violations committed by them. While upholding the finding of the Ld. Adjudicating Authority as far as the role of the appellants in the violations attracting the penalty are concerned, this tribunal modifies the impugned order to the extent of penalties imposed on the aforesaid appellants as stated hereinafter, namely, the penalty imposed on J M Trading Corporation is reduced from Rs.3,16,000/- to Rs.1,00,000/-; the penalty imposed on Saravana Metal Corporation is reduced from Rs.1,76,000/- to Rs.55,000/-; the penalty imposed on SSK Iron and Steels is reduced from Rs.5,07,000/- to Rs.1,80,000/-; the penalty imposed on Magnum Steels is reduced from Rs.1,65,000/- to 40,000/- and the penalty imposed on Sri Ambal Steel Traders is reduced from Rs.2,95,000/- to Rs.70,000/-. Resultantly, the appeals are partly allowed and stand disposed of in the above terms. Issues: Whether the penalties imposed under Rule 26(2) of the Central Excise Rules, 2002 on the appellants for issuance of invoices without delivery (thereby enabling ineligible Cenvat credit) are tenable in law and commensurate with the role of the appellants, and if not, whether and to what extent the penalties should be modified.Analysis: The Tribunal examined Rule 26(2) of the Central Excise Rules, 2002 which makes a person issuing an excise duty invoice without delivery of the goods or abetting such issuance liable to penalty not exceeding the amount of benefit available to the user or five thousand rupees, whichever is greater. The Tribunal held that the quantum of penalty is determined by the amount of Cenvat credit shown in such invoices as the benefit available to the user, and that liability under Rule 26(2) arises irrespective of whether the user actually availed the credit or whether the issuer debited his own Cenvat account. Applying these principles to the record, the Tribunal found that the adjudicating authority's factual findings that the appellants had issued invoices without delivery and were liable under Rule 26(2) are supported by evidence and do not merit interference. However, the Tribunal also held that imposing penalties across the board at a uniform percentage without regard to the particular facts and role of each appellant rendered the quantum of penalties untenable. The Tribunal considered factors relevant to penalty quantum including number of offending instances, quantum of benefit sought to be passed on, whether appellants were repeat offenders, and any restitution or realization of duty by the appellants, and concluded that reduction of the imposed penalties was warranted in the interests of proportionality and justice.Conclusion: The Tribunal affirmed the adjudicating authority's findings of violation under Rule 26(2) in favour of the Revenue but modified the quantum of penalties in favour of the appellants by reducing the penalties imposed on each appellant; therefore the penalties are partly upheld and partly reduced (decision favours the appellants on quantum).