No Confiscated Goods and No Fake Invoices: CESTAT Sets Aside Penalty on Director Under Rule 26 [Read Order]
Setting aside the penalty imposed on the Director, the CESTAT held that Rule 26 of the Central Excise Rules applies only where goods are confiscated or fake invoices are issued. The bench found no evidence of such conduct in this case
CESTAT Delhi, Penalty
CESTAT Delhi, Penalty
The Principal bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the penalty imposed on the Director of a company, ruling that there were no confiscated goods or fake invoices under Rule 26 of the Central Excise Rules, 2002.
In Excise Appeals, the appellants challenged the Order-in-Original dated 24.11.2022 passed by the Additional Director General (Adjudication), Directorate General of GST (DGGST). The appeals were filed by M/s Balaji Wire Pvt. Ltd. and its Director, Mr. Arun Kumar Gupta, respectively.
The disputes arose from investigations conducted by the Directorate General of Central Excise Intelligence (DGCEI) at a residential flat in Delhi. During the search, officers seized documents and electronic data about six manufacturing units of the Bansal Group, including Balaji Wire Pvt. Ltd. Mr. Arun Kumar Gupta is a director of Balaji.
The investigation revealed that certain goods manufactured and cleared by Balaji were not subject to central excise duty, leading to the issuance of a Show Cause Notice (SCN) dated 06.04.2012 proposing a duty demand of ₹9,44,15,478/- along with interest and penalties. Additionally, penalties were proposed against Mr. Arun under Rules 26 and 27 of the Central Excise Rules, 2002, read with Section 174(2) of the CGST Act, 2017.
During the investigation, Balaji deposited ₹4,07,11,279/- towards duty, ₹88,19,908/- towards interest, and ₹61,06,692/- towards penalty. Following adjudication, the Additional Director General confirmed a reduced duty demand of ₹5,32,85,623/-, along with interest and a penalty of equal amount under Section 11AC of the Central Excise Act, 1944.
The Additional Director General appropriated amounts deposited towards duty and interest but did not adjust the pre-SCN penalty deposit against duty, citing procedural compliance with Section 11AC.
The second appeal challenged the penalty imposed under Rule 26 of the Central Excise Rules on Mr Arun. Rule 26 penalises persons dealing with excisable goods liable to confiscation or issuing invoices without supply to enable ineligible CENVAT credit claims.
The tribunal noted that in the present case, no goods were confiscated, and there was no evidence of invoices being issued without actual supply. Consequently, the conditions for imposing a penalty under Rule 26 were not met, and the two-member bench, comprising Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member), set aside the penalty imposed on Mr Arun, granting consequential relief.
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