Penalty under Rule 15(1) for wrong availment of CENVAT Credit on Technical Employee of Company is invalid: CESTAT [Read Order]

In a recent ruling, the Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) penalty under rule 15(1) of Cenvat Credit Rules, 2004 for wrong availment of CENVAT credit on a technical employee of the company is invalid.

Shri Pranatharthiharan Sridharan, the appellant is an employee Director in the Company namely M/s. Diamond Power Transformers Limited.  A penalty of Rs. 2,28,65,888/- equal to duty evaded by M/s. Diamond Power Transformers Limited was imposed on the appellant, alleging that he was overall in charge of the Company and had the knowledge of the wrong availment of Cenvat credit by M/s. Diamond Power Transformers Limited. 

The appellant submitted that he is a technocrat and is employed as Director of operations and looking after the production activities of the Company.  The appellant being a technical person would not be involved in the offence of wrong availment of credit therefore, the penalty imposed under Section 15(1) is not imposable. 

The penalty was imposed under Section 15(1) of Cenvat Credit Rules, 2004 on the appellant on the ground that he was overall in charge and involved in the fraudulent availment of Cenvat credit.  Rule 15 of Cenvat Credit Rules, 2004 states that a person shall be liable to penalty who takes or utilize Cenvat credit in respect of input or capital goods or input services wrongly or in contravention of any of the provisions of these Rules. 

A two-member bench comprising Mr Ramesh Nair and Mr C L Mahar observed that M/s. Diamond Power Transformers Limited who has availed fraudulent Cenvat credit, the appellant being employee Director has not availed Cenvat credit for himself therefore, Rule 15(1) is not applicable on the person who has neither availed Cenvat credit nor is the beneficiary of Cenvat credit. 

Further found that the penalty under Rule 15(1) was wrongly imposed on the appellant. It was a settled principle of law that penal provisions need strict interpretation and a person could only be able to defend his case only when the particular provision under which he is proposed to be penalized, is mentioned in the notice itself.

The CESTAT set aside the impugned order to the extent of imposition of penalty under Rule 15(1) on the appellant, who is merely an employee of the Company and allowed the appeal.

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