2012 (7) TMI 947 - HC - Central Excise

Summary

Issues involved:
The issues involved in the judgment are the imposition of penalty under Rule 26(2) of the Central Excise Rules 2002 for irregularly availing CENVAT Credit and passing on the benefit to another entity, the applicability of Rule 26(2)(ii) inserted by notification no.8/2007-C.E. (N.T.) dated 1st March, 2007, and the requirement of pre-deposit for filing an appeal before the Central Excise & Service Tax Appellate Tribunal (CESTAT).

Imposition of Penalty under Rule 26(2):
The petitioner was alleged to have irregularly availed CENVAT Credit and passed on the benefit to Tata Steel Ltd., leading to the imposition of a penalty of &8377; 62,20,990/- under Rule 26(2) of the Central Excise Rules 2002. However, it was argued that Rule 26(2)(ii) inserted by a subsequent notification could not be invoked for benefits taken prior to its enactment. The High Court held that the penal provision of Rule 26(2) was not applicable to the petitioner and does not have retrospective operation. The Court set aside the penalty imposed on the petitioner.

Applicability of Rule 26(2)(ii):
Rule 26(2)(ii) inserted by notification no.8/2007-C.E. (N.T.) dated 1st March, 2007, provided for penalties related to ineligible benefits under the CENVAT Credit Rules. The Court clarified that this rule could not be invoked for benefits taken before its introduction, as in the case at hand. The judgment emphasized that an issue of law can be raised at any point in time, and failure to do so earlier cannot be a ground for penalizing the petitioner.

Pre-deposit Requirement for Appeal:
The petitioner had filed an appeal before CESTAT challenging the penalty and had been directed to make a pre-deposit of &8377; 10 lakhs. Subsequently, a miscellaneous application for variation of this order was rejected for failing to raise the issue of the applicability of penal provisions before the lower authority. The High Court held that even though the petitioner had the financial capacity to pay the disputed duty, blocking funds through pre-deposit would amount to hardship. The Court directed the CESTAT to hear the appeal on merits without insisting on pre-deposit, requiring the petitioner to deposit a nominal sum of &8377; 5,000 within a week.

In conclusion, the High Court set aside the penalty imposed on the petitioner under Rule 26(2), clarified the non-retrospective applicability of Rule 26(2)(ii), and directed CESTAT to hear the appeal without insisting on a substantial pre-deposit, ensuring a fair opportunity for the petitioner to present their case.