In the recent ruling, the Ahmedabad bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) set aside the Rs. 50,00,000 penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002.
Gouri Shankar Poddar,the appellant-assessee,was the Director of M/s Raj Rayon Ltd. A show cause notice dated 11.06.2008 was issued to the company, proposing to deny CENVAT credit of Rs.2,83,51,618 availed between October 2006 and April 2007.
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A penalty was proposed against the appellant under Rule 26 of the Central Excise Rules, 2002, for allegedly being responsible for inadmissible CENVAT credit.
The Commissioner confirmed the entire CENVAT credit demand and imposed a Rs.50,00,000 penalty on the appellant under Rule 26 in the order dated 26.04.2017, based on the show cause notice. The appellant being aggrieved by the order filed an appeal before the tribunal.
The counsel on behalf of the appellant argued that since neither the show cause notice nor the order proposed the confiscation of goods, the penalty under Rule 26 was not applicable.
The Tribunal carefully considered the submissions from both sides and reviewed the records. It found that the penalty on the appellant under Rule 26 was imposed following the confirmation of the CENVAT credit demand against M/s Raj Rayon Ltd.
The bench opined that, from the plain reading of Rule 26, the penalty could be imposed under either sub-rule (1) or sub-rule (2). Sub-rule (1) pertains to actions such as transporting, removing, or dealing with excisable goods known to be liable to confiscation. Sub-rule (2) applies to persons who issue or abet fraudulent invoices or documents related to CENVAT credit.
In this case, the operating order revealed that no goods had been confiscated, making sub-rule (1) inapplicable. Regarding sub-rule (2), the invoices in question were issued by the supplier, not the appellant. Therefore, sub-rule (2) also did not apply. As a result, the penalty could not be imposed under either sub-rule of Rule 26.
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The two-member bench comprising Ramesh Nair(Judicial Member) and C L Mahar(Technical Member) set aside the penalty and allowed the appeal with consequential relief.
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