Whether penalty imposable on the director for wrong availment of credit by the company under Rule 26?

PJ/Case Law/2013-14/1852

Case:- ASHOK VERMA VS COMMR. OF C. EX., DELHI-IV

Citation:- 2013 (293) E.L.T. 410 (Tri. - Del.)

Brief facts:- The appellant is a Director of M/s. Asha Telecom Pvt. Ltd. engaged in manufacture of telephone parts. One of their raw materials is H.R. Sheets. The allegation against the appellant-company is that during 2004-2005, 2005-2006, they took Cenvat credit of Rs. 8,19,043/- on the basis of 29 invoices issued by M/s. Sagarika Trading Company, M/s. Ayushi Steel Company Pvt. Ltd. and M/s. Bhagwati Trading Company, all registered dealers. The department conducted investigation in respect of the registered dealers from whom the H.R. Sheets are claimed to have been purchased and was found that they have issued bogus invoices without supplying any materials. On this basis inquiry was made in respect of M/s. Asha Telecom Pvt. Ltd. and in this regard, statement of Shri Ashok Verma, Director was recorded wherein he admitted that the Cenvat credit of Rs. 8,19,043/- has been taken on the various 29 bogus invoices issued by the above registered dealers without receiving any material. On this basis a show cause notice was issued for recovery of the abovementioned wrongly taken Cenvat credit from M/s. Asha Telecom Pvt. Ltd., imposition of penalty on the registered dealers and also for imposition of penalty on Shri Ashok Verma, Director of M/s. Asha Telecom Pvt. Ltd. The jurisdictional Addl. Commissioner vide order-in-original dated 8-4-2010 confirmed the abovementioned Cenvat credit demand against M/s. Asha Telecom Pvt. Ltd. along with interest and penalty of equal amount was imposed on them under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Besides this another penalty of Rs. 2 Lakh was imposed on Shri Ashok Verma for taking Cenvat credit on the basis of bogus invoices under Rule 26 of the Central Excise Rules. On being appeal filed by Shri Ashok Verma, Director before the Commissioner, the imposition of penalty on Shri Ashok Verma, Director under Rule 26(1) was upheld vide order-in-appeal dated 8-10-2010 against which this appeal has been filed.

Appellant’s contention:- Shri N.K. Sharma, ld. Counsel for the appellant, pleaded that the confirmation of Cenvat Credit demand against M/s. Asha Telecom Pvt. Ltd. and imposition of penalty on them under Rule 15(2) is not being disputed, that in this appeal, only the imposition of penalty on Shri Ashok Verma under Rule 26 which is being disputed, that under Rule 26 of the Central Excise Rules, penalty can be imposed only on the person who has acquired possession or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner dealing with, any excisable goods which he knows or has reason to believe are liable to confiscation, that in this rule, there is no provision for imposing penalty for taking wrong Cenvat credit and that in view of this, the impugned order upholding the imposition of penalty on the appellant under Rule 26 is not sustainable.

Reasoning of Judgment:- After considering the submissions from both sides and perused the records. The allegation against the appellant is that he intentionally allowed availment of Cenvat Credit on the basis of bogus invoices issued by three registered dealers in a fraudulent manner. As such there is no allegation against the appellant that he had dealt with any excisable goods which he knew or had reason to believe were liable to confiscation. Under Rule 26 of the Central Excise Rules, as the same stood during the period of dispute, penalty was imposable on any person who acquires possession or is in any way concerned in transporting, removing, depositing, keeping concealing, selling or purchasing, or in any other manner dealing with any excisable goods which he knew or had reason to believe, are liable to confiscation. As such, in this rule, there is no provision for imposition of penalty for wrongly availing Cenvat credit in a fraudulent manner or permitting and availment w.e.f. 1-3-2007, sub-rule (2) has been added to the Rule 26. But this rule provides for penalty on any person who issues an excise invoice without delivery of the goods and abets in issue of such invoice or who issues any other document or abets in issue of such document, on the basis of which another assessee is likely to take some ineligible benefit. Thus, as such this rule also cannot be applied to those who have taken ineligible Cenvat credit. The only provision for imposing penalty for taking Cenvat credit wrongly is Rule 15 of Cenvat Credit Rules, 2004 under which the penalty can be imposed on the person who takes the Cenvat credit wrongly. Since in this case, Cenvat Credit has been availed by M/s. Asha Telecom Pvt. Ltd., not by Shri Ashok Verma, Director of M/s. Asha Telecom Pvt. Ltd., it is M/s. Asha Telecom Pvt. Ltd., who will be liable for penalty and not the Director of the appellant-company. In view of this, the impugned order upholding the penalty under Rule 26 of the Central Excise Rules on the appellant is not sustainable, the same is set aside and the appeal is allowed.

Decision:- Appeal allowed.

Comment:- The substance of this case is that it is not justifiable to impose penalty on the director of the company for wrong availment of credit under Rule 26 of the Central Excise Rules, 2002 as provision for imposition of penalty with respect to wrong availment of cenvat credit is contained in Rule 15 of the Cenvat Credit Rules, 2004. Accordingly, the imposition of penalty under Rule 26 was held to be improper and the appeal was allowed.

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PJ/Case Law/2013-14/1852

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