Penalty under Rule 26 of Central Excise Rules is leviable on Natural Person Only: CESTAT [Read Order]

In Apple Sponge and Power Ltd vs. Commissioner of Service Tax, the Mumbai Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that Penalty under Rule 26 can be imposed only on the natural individual person and not on the artificial person or company because the goods is handled by natural living person and not by an artificial entity.

In this case, the Commissioner had imposed a penalty under Rule 26 of the Central Excise Rules of Rs.4.80 Lacs on the appellant on the ground that the appellant had received invoices from M/s. Ambe Vaishno Steels Pvt. Ltd. without getting any inputs covered under the inputs. The assessee appealed before the CESTAT.

The Counsel for the assessee argued that penalty under Rule 26(2) is imposable only on the person who issues the invoice on which Cenvat Credit is passed on. Therefore, sub-rule (2) is also not applicable as the appellant has not issued the invoice whereas they have received the same. He also submitted that Rule 26 penalty can be imposed only on an individual natural person and it cannot be imposed on the artificial person.

The bench comprising of Judicial Member Ramesh Nair observed that Rule 26 penalty could be imposed in two situations, which is either under sub-rule (1) by which penalty could be imposed on the person who deals with the goods which is liable for confiscation or under Sub rule 2, by which penalty is imposed on the person who issues the invoice without supplying the inputs for fraudulent passing on the cenvat credit. The Court found that doesn’t fall under either of the two categories.

“The appellant does not fall under the category of the person mentioned in sub-rule (2). The invoice was issued by M/s. Ambe Vaishno Steels Pvt. Ltd. Therefore, if at all penalty is imposable, it is on M/s. Ambe Vaishno Steels Pvt. Ltd. and not on the appellant. I also find that penalty under Rule 26 can be imposed only on the natural individual person and not on the artificial person or company because the goods is handled by natural living person and not by an artificial entity. Therefore, on both the counts, penalty under Rule 26 is not imposable.” observed the member.