2026 (3) TMI 1524 - AT - Central Excise

Rule 26 penalty for fictitious invoices upheld, but reduced where the noticee's role was limited.

Penalty under Rule 26 of the Central Excise Rules, 2002 was sustained where the evidence showed issuance of invoices without actual supply of goods and ... Imposition of penalty - invoices without delivery of goods - Wrongful CENVAT credit - Proportionality of penalty. Penalty for invoices without delivery of goods - Irregular availment of CENVAT credit - HELD THAT:- The Tribunal held that penalty under Rule 26 is attracted where it is established that invoices were issued without supply of the goods mentioned therein, and therefore rejected the appellant's preliminary objection to the very invocation of that provision. On the evidence, the Tribunal found that the appellant's godown measured only about 800 sq. ft., had no electricity connection, and could not support the claimed activity of cutting TMT bars. It also accepted the commercial improbability of converting prime TMT bars into lower-value scrap and relied on the vehicle verification conducted through the official transport portal to conclude that the appellant could not have actually undertaken the activity or supplied the raw material to the manufacturer. The fact that the manufacturer later opted for VCES and paid the amounts demanded was treated as supporting the Revenue's case of irregular availment of CENVAT credit. On that basis, the appellant was held liable to penalty for his role in the offence. [Paras 11, 12, 13, 14] The appellant's liability to penalty under Rule 26 was upheld. Proportionality of penalty - Limited role of noticee - HELD THAT:- While sustaining the penalty on merits, the Tribunal found that the material on record, though sufficient to establish the appellant's involvement, warranted moderation of the quantum. Taking into account the nature of the evidence and the limited role attributed to the appellant, it held that the penalty originally imposed was excessive and deserved reduction. [Paras 12, 14] The penalty was reduced from Rs.10,00,000/- to Rs.1,00,000/-. Final Conclusion: The Tribunal upheld the appellant's liability to penalty under Rule 26 on the finding that the invoices were not backed by actual supply of goods. However, considering the nature of the evidence and the appellant's limited role, the penalty was reduced to Rs.1,00,000/-. Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2002 was sustainable against a person alleged to have issued invoices without actual supply of goods and, if sustainable, whether the quantum of penalty required reduction.Analysis: Rule 26 permits penalty where a person deals with excisable goods or issues invoices or documents knowing, or having reason to believe, that they facilitate confiscation or ineligible benefit, including wrongful CENVAT credit. The evidence relied upon indicated that the appellant's premises lacked adequate infrastructure and electricity for the alleged cutting activity, the vehicle records and transport evidence were doubtful, and the surrounding circumstances supported the conclusion that the transactions were not genuine and were meant to enable irregular credit. At the same time, the role attributed to the appellant was treated as limited, and the material on record was found sufficient to sustain liability but not to justify the full penalty imposed.Conclusion: The penalty under Rule 26 was upheld, but the amount was reduced from Rs.10,00,000/- to Rs.1,00,000/-.Final Conclusion: The appellant remained liable under Rule 26, but received substantial relief in the quantum of penalty.Ratio Decidendi: Penalty under Rule 26 is sustainable where the evidence shows issuance of invoices or participation in transactions facilitating wrongful CENVAT credit without actual supply of goods, and the penalty may be moderated where the role of the noticee is limited.