CESTAT Scales Down Penalties Up To ₹14 Lakh After Rejecting Uniform Penalty Approach On Invoice Transactions [Read Order]

CEATAT penalties under excise law must be proportionate and based on individual culpability, not imposed mechanically on all co notices by dealers.

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, declared that uniform penalties imposed on multiple co-notices involved in invoice-only transactions are not legally sustainable. Upholding the violation,

Subsequently,the Tribunal reduced the penalties of over ₹14 lakh, holding that the penalty should be in proportion to the individual’s role and involvement in the misconduct.

The appeals were based on a common adjudication order passed in pursuance of a DGCEI investigation into the alleged misuse of CENVAT credit by a steel rolling mill. Several traders, including Saravana Metal Corporation, JM Trading Corporation, SSK Iron & Steels Pvt. Ltd., Magnum Steels, and Sri Ambal Steel Traders were accused of generating central excise invoices without the underlying supply of goods thereby facilitating the main noticee to take inadmissible credit.

On these allegations, the adjudicating authority imposed penalties under Rule 26(2) of the Central Excise Rules, 2002, uniformly at 50% of the alleged credit involved, without making any distinction based on the appellants’ respective actions.

Before the Tribunal, the appellants did not contest the factual aspect of the issuance of invoices without movement of goods. However, they contested the amount and mechanical imposition of penalties, as their role, number of transactions, and level of involvement were not the same.

Further, it was submitted that some of the appellants had debited the amount of duty as shown in the invoices, had not derived any direct monetary benefit, and were not the beneficiaries of the inadmissible credit.

Therefore, the imposition of the same or proportionate amount of penalties without any role-wise assessment was arbitrary and excessive.The Revenue supported the imposition of the penalties and submitted that the issuance of invoices without goods itself is sufficient to attract Rule 26(2).

The Tribunal comprising Justice Ajayan T.V. (Judicial Member) held that the failure to deliver goods and issue excise invoices is a grave violation and is liable for penalty under Rule 26(2). However, it was held that the penalty is discretionary and not to be imposed mechanically.

The Bench noted that the adjudicating authority did not consider the facts such as the nature of transactions, the amount of credit availed, and the level of participation. The Tribunal held that imposing equal penalties is against the principle of proportionality and reduced the penalties imposed on each of the appellants substantially from approximately ₹1.76 lakhs to ₹55,000 for Saravana Metal Corporation, and so on.

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