Penalty for alleged abetment in fraudulent CENVAT credit was set aside absent corroborative evidence linking the suppliers to diversion or fake invoicing.

Penalties under Rule 26(2) of the Central Excise Rules, 2002 were found unsustainable where the suppliers had cleared goods against invoices on payment of duty and no corroborative evidence showed their abetment in fraudulent CENVAT credit availment or diversion of goods. The buyer's diversion of goods and alleged fake invoicing could not be attributed to the suppliers, and there was no independent basis for penal action against them. The main noticee's settlement under the Sabka Vishwas (Legacy Dispute Resolution) Scheme also weighed against continuation of the penalty proceedings, and the penalties were set aside.

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Issues: Whether penalties imposed under Rule 26(2) of the Central Excise Rules, 2002 on the appellants for alleged abetment in fraudulent CENVAT credit availment and diversion of goods were sustainable.

Analysis: The appellants had supplied goods against invoices to a registered buyer and had cleared the goods on payment of central excise duty. No corroborative or concrete evidence established their involvement in the alleged offence, and the diversion of goods by the buyer without bringing them to its factory could not be attributed to the appellants. The denial of CENVAT credit related to the buyer's alleged issuance of fake invoices, and there was no independent basis to sustain penalty against the appellants. The fact that the main noticee had resolved the dispute under the Sabka Vishwas (Legacy Dispute Resolution) Scheme also weighed against continuation of the penalty proceedings.

Conclusion: The penalties under Rule 26(2) of the Central Excise Rules, 2002 were unwarranted and were set aside.

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