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2019 (12) TMI 530 - MADRAS HIGH COURTImposition of penalty u/r 26(2) of CER, 2002 - CENVAT Credit - the buyers had or were likely avail such credit of such duty under the provisions of the CENVAT Credit Rules, 2004 - the appellant had not only reversed the credit at the time of removal of the goods and again before the issue of SCN on the mistake being pointed out - It is contention of the revenue that having purchased the goods from the second stage dealer, the appellant ought not to have passed on input credit on the strength of a CENVATABLE excise invoice and therefore the appellant was liable to pay the penalty equivalent to the benefit that was available to the buyers on account of the invoice issued by the appellant. HELD THAT:- The power to impose penalty under the provisions of the Central Excise Rules, 2002 is traceable to Section 37 of the Central Excise Act, 1944. As per Section 37 (3) of the said Act the central government can make rules to impose penalty of ₹ 5000 where no other penalties is provided under the Act - Under 37 (4) of the Central Excise Act, 1944, which is an exception to sub-clause (3), any manufacturer, producer or licensee of a warehouse can be made liable to a penalty not exceeding the duty leviable on such goods or ten thousand rupees, whichever is greater. It specifies specific instances for which Rules can be framed. From a reading of the above Sub-Sections to Section 37, it is evident that penalty under Rule 26 of Central Excise Rules, 2002 is traceable to power vested with the Rule making authority under Sub-clause (3) and not under Sub clause (4) of Section 37 of the Central Excise Act, 1944. Therefore, maximum penalty which can be imposed is only ₹ 5000/- under Rule 26 of the Central Excise Rules, 2002 - Even otherwise, the language adopted in Clause (ii) to Sub- Rule (2) to Rule 26 is clear. Any person, who issues any excise duty invoice without delivery of goods specified therein or abets making such invoice; or any other document or abets in making such document, on the basis of which the user of the said invoice or document is likely to take or has taken any in-eligible benefit under the Act or the rules made their under like claiming of Cenvat Credit under the Cenvat Credit Rules, 2004 or refund, such person shall be liable to a penalty not exceeding the amount of such benefit passed on or Five Thousand Rupees, which ever is greater. Section 7(5) of the said Act cannot be regarded as confiscatory. For the present case, it will suffice to state that the penalty under Rule 26(2)(ii), is relatable only to penalty under Section 37(3) of the Central Excise Act, 1944 and therefore, there is no scope to levy penalty above ₹ 5000 under Rule 26(2)(ii) of the Central Excise Rules, 2002 when read in harmony with Section 37(3) of the Central Excise Act, 1944 - the appellant has not committed any fraud. The appellant has also compensated the revenue for any perceived loss to the revenue. Rule 26(2) is intended only to target those manufacturers and dealers who create fictitious invoice/documents to enable a buyers to wrongly avail ineligible of Cenvat Credit without actual supply by them or removal of goods. The intention of the rule making authority under Rule 26 of Cenvat Credit Rules, 2004 is not to recover the amount more than once, ie. once from the person like the appellant who has purportedly passed on such ineligible credit wrongly and again from the buyer. Rule 14 can be pressed into service only against buyer who wrongly avails such ineligible credit. The power to recover the amount under Rule 14 of Cenvat Credit Rules, 2004 is not contemplated against persons like the appellant. It is also no where stated that the appellant had wrongly availed credit - Since the appellant has paid the duty/ Cenvat Credit twice, first at the time of removal of goods by issuing Central Excise invoice by debiting the Cenvat Credit Account and thereafter once again for the second time before issue of show cause notice together with interest, the imposition of penalty under Rule 26 of the Central Excise Rules, 2002, will have to be construed as excessive. The penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002 be reduced to a token penalty of ₹ 5,000/- in consonance with Section 37(3) of the Central Excise Act, 1944 - appeal allowed in part.
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