Penalty Remains Unsustainable In Absence Of Proof of Knowledge of Fraudulent CENVAT Credit: CESTAT [Read Order]

CESTAT reiterates that penal liability under excise law requires proof of conscious knowledge or involvement in fraudulent CENVAT credit practices.

The CESTAT has reserved penalties imposed under Rule 26(2) of the Central ExciseRules, 2002, holding that penal liability cannot be attributed to a supplier in the absence of concrete evidence to establish knowledge or conscious participation in fraudulent availment or distribution of CENVAT credit.

The appeals were preferred by Calwien Marketing Pvt. Ltd. and its Director against the penalties imposed for allegedly abetting M/s Sprint Communication Pvt. Ltd. in the fraudulent transfer of CENVAT credit. The Department of Revenue alleged that Sprint Communication had raised invoices without delivering any goods and that Calwien had abetted this fraud by supplying excisable goods.

There was no dispute that Calwien supplied goods such as angles, shafts, towers and steel prefabricated structures on an ex-factory basis, against valid invoices on payment of central excise duty and received consideration through banking channels.

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The appellants were of the view that there was no allegation or evidence to suggest that they had any knowledge of the fraudulent activity on the part of the buyer. The appellants further submitted that if there was any diversion of goods it could not be attributed to them.

However,It was also pointed out that the main notice had settled its dispute under the Sabka Vishwas Legacy Dispute Resolution Scheme (SVLDRS).The Revenue submitted that the issuance of invoices without actual supply by the main notice was sufficient to attract the penalty on co-noticees.

The Bench comprising Justice Ashok Jindal[Judicial Member] and K.Anpazhakan[Technial Member] held that the penalty under Rule 26(2) is required to be proved by clear proof of knowledge, intent or active participation in the alleged fraud. The mere supply of goods to a registered buyer on payment of duty, without any corroborative evidence of collusion, cannot form the basis of penal action. The Tribunal also observed that once the proceedings against the main notice were set at rest under SVLDRS the penalties against co-noticees were not warranted.

Accordingly,the penalties were directed to be set aside in their entirety.

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