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2025 (6) TMI 590 - AT - Central ExciseLevy of penalties u/r 25(1) 26(1) of Central Excise Rules 2002 and Rule 15(1) 15A of Cenvat Credit Rules 2004 - appellant was engaged in illicit activities and had passed on inadmissible cenvat credit to their buyers without actual delivery of goods. Invocation of Rule 25 - HELD THAT - Hon ble High Court of Delhi on a similar issue in the matter of Commissioner of C.Ex. Delhi-II vs. Ganpati Rollings Pvt. Ltd. 2016 (6) TMI 157 - DELHI HIGH COURT has specifically held that given the wording of Rule 25 of the CE Rules the ingredients mentioned in Section 11AC have to be considered before determining the question of penalty. In the instant case it is not in dispute that the show cause notice (SCN) made no reference to Section 11AC and therefore there was no occasion to adjudicate the issue of imposition of penalty under Section 11AC of the Act. - the show cause notice does not propose a penalty u/r 25 ibid thus the imposition of penalty amounts to going beyond the scope of show cause notice which is not permissible in law - Revenue argued that non mentioning of provisions of law in the show cause notice does not vitiate the proceedings but in my view the said argument of Revenue is against the settled legal position that adjudicating authorities cannot go beyond the show cause notice. Penalty u/r 26 - HELD THAT - Rule 26 (1) provides that Any person who acquires possession of or is in any way concerned in transporting removing depositing keeping concealing selling or purchasing or in any other manner deals with any excisable goods which he knows or has reason to believe are liable for confiscation under the Act or these rules shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees whichever is greater. - As it has already been concluded by me that rule 25 ibid can t be invoked on the facts of this case therefore there is no question of any confiscation/penalty which is the mandate of the said rule. Resultantly the appellant cannot be said to have any reason to believe or knowledge that the goods are liable for confiscation and no such case has been made out by the department while issuing the show cause notice. Therefore rule 26 ibid also cannot be invoked and penalty imposed therein deserves to be set aside. Applicability of Rule 15 (1) of Cenvat Credit Rules 2004 - HELD THAT - The said Rule provides that If any person takes or utilises CENVAT credit in respect of input or capital goods or input services wrongly or in contravention of any of the provisions of these rules then all such goods shall be liable to confiscation and such person shall be liable to a penalty in terms of clause (a) or clause (b) of sub-section (1) of section 11AC of the Excise Act The said provision applies if the appellant had taken or utlised Cenvat credit in respect of input or capital goods or input services but no such case has been made out by the department in the show cause notice therefore the penalty u/r. 15(1) ibid is unwarranted. So far as penalty of Rs.5, 000/- u/r. 15A ibid is concerned since the same has not been proposed in the show cause notice the lower authorities cannot travel beyond the show cause notice and the said penalty is set aside on this ground alone. Conclusion - i) Penalty under Rule 25 was not sustainable and was set aside. ii) Penalty under Rule 26 was set aside. iii) Penalties under Rule 15(1) and Rule 15A were set aside. The impugned order is modified - the Appeal is disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification for imposing penalties under Rule 25(1) and Rule 26(1) of the Central Excise Rules, 2002 Relevant legal framework and precedents: Rule 25 of the Central Excise Rules, 2002, provides for confiscation and penalty subject to the provisions of Section 11AC of the Central Excise Act. Rule 26(1) prescribes penalties for persons dealing with excisable goods liable for confiscation. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Commissioner of C.Ex., Delhi-II vs. Ganpati Rollings Pvt. Ltd., which held that the ingredients of Section 11AC must be considered before imposing penalties under Rule 25, and the show cause notice must specifically refer to Section 11AC for such penalties to be validly imposed. Court's interpretation and reasoning: The Tribunal found that the show cause notice did not refer to Section 11AC, nor did it propose penalties under Rule 25. Since Rule 25's operation is "subject to the provisions of Section 11AC," the absence of any reference to Section 11AC in the show cause notice meant that the authorities could not validly impose penalties under Rule 25. This was supported by the precedent which emphasized the necessity of such reference for valid adjudication. Key evidence and findings: The facts revealed a shortage of 112.736 MT of excisable goods not physically found during search, with a corresponding Cenvat credit of Rs.10,61,166/-. However, the goods were not seized, and the show cause notice did not propose penalty under Rule 25. Application of law to facts: Since the goods were not seized and no penalty under Rule 25 was proposed in the show cause notice, the imposition of penalty under Rule 25 was beyond the scope of the notice and therefore unsustainable. The Tribunal set aside the penalty under Rule 25 on this ground. Treatment of competing arguments: The Revenue argued that non-mention of statutory provisions in the show cause notice does not vitiate proceedings. The Tribunal rejected this, holding that adjudicating authorities cannot go beyond the scope of the show cause notice. Conclusions: Penalty under Rule 25 was not sustainable and was set aside. Issue 2: Validity of penalty imposed under Rule 26(1) of the Central Excise Rules, 2002 Relevant legal framework and precedents: Rule 26(1) penalizes persons dealing with excisable goods liable for confiscation under the Act or rules. The penalty is contingent upon knowledge or reason to believe that goods are liable for confiscation. Court's interpretation and reasoning: The Tribunal noted that the show cause notice merely recited the language of Rule 26 without substantiating the confiscation liability of the goods. Since Rule 25 could not be invoked (and thus no confiscation was established), the foundational premise for Rule 26 penalty was absent. Without any reason to believe or knowledge that the goods were liable for confiscation, the appellant could not be held liable under Rule 26. Key evidence and findings: The absence of confiscation proceedings or findings and the lack of specific allegations in the show cause notice negated the applicability of Rule 26 penalty. Application of law to facts: Given the absence of confiscation liability and the lack of evidence that the appellant knew or had reason to believe the goods were liable for confiscation, imposition of penalty under Rule 26 was unjustified. Conclusions: Penalty under Rule 26 was set aside. Issue 3: Penalty under Rule 15(1) and Rule 15A of the Cenvat Credit Rules, 2004 Relevant legal framework and precedents: Rule 15(1) deals with penalty where Cenvat credit is taken or utilized wrongly or in contravention of the rules, invoking Section 11AC(1) of the Central Excise Act. Rule 15A prescribes a fixed penalty for certain contraventions related to Cenvat credit. Court's interpretation and reasoning: The Tribunal observed that the show cause notice did not allege that the appellant had taken or utilized Cenvat credit wrongly or in contravention of the rules, which is a prerequisite for invoking Rule 15(1). Consequently, penalty under Rule 15(1) was unwarranted. Further, penalty under Rule 15A was not proposed in the show cause notice, and therefore its imposition was beyond the scope of the notice and not permissible. Key evidence and findings: The appellant had reversed the Cenvat credit during investigation, and no allegation of wrongful utilization was made in the show cause notice. Application of law to facts: Without a case of wrongful utilization of Cenvat credit being made in the show cause notice, penalties under Rule 15(1) and Rule 15A could not be sustained. Conclusions: Penalties under Rule 15(1) and Rule 15A were set aside. 3. SIGNIFICANT HOLDINGS The Tribunal held that: "Given the wording of Rule 25 of the CE Rules, the ingredients mentioned in Section 11AC have to be considered before determining the question of penalty. In the instant case it is not in dispute that the show cause notice (SCN) made no reference to Section 11AC, and, therefore, there was no occasion to adjudicate the issue of imposition of penalty under Section 11AC of the Act." It established the core principle that penalties under Rule 25 of the Central Excise Rules, 2002, cannot be imposed unless the show cause notice specifically refers to Section 11AC of the Central Excise Act, 1944, and the adjudicating authority makes findings accordingly. Further, it was held that adjudicating authorities cannot go beyond the scope of the show cause notice in imposing penalties, reinforcing the settled legal position that the contents of the show cause notice delimit the adjudicatory process. On Rule 26, the Tribunal clarified that penalty under this rule is contingent upon the existence of confiscation liability under the Act or rules, and knowledge or reason to believe by the person concerned. Absence of such findings or allegations in the show cause notice renders penalty under Rule 26 unsustainable. Regarding Rule 15(1) and Rule 15A of the Cenvat Credit Rules, 2004, the Tribunal held that penalties under these provisions require specific allegations of wrongful utilization or contravention of Cenvat Credit Rules in the show cause notice. Imposing penalty without such allegations or proposals is impermissible. Consequently, the Tribunal modified the impugned order by setting aside penalties under Rule 25(1) and Rule 26(1) of the Central Excise Rules, 2002, and under Rule 15(1) and Rule 15A of the Cenvat Credit Rules, 2004, while upholding the reversal of Cenvat credit by the appellant.
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