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2025 (5) TMI 57 - AT - Central ExciseLevy of penalty under Rule 26 of Central Excise Rules 2002 - fraudulent availment of CENVAT credit - HELD THAT - In addition to the factual inconsistencies in the show cause notice as highlighted by the learned Counsel for the appellants we also find that no positive action on part of the appellants in order to allege collusion with M/s Puneet Exports Inc. has been brought on record. The fact that the appellants are job-workers and thus are not required to maintain any records is not disputed. Under the circumstances it is not understood as to how Revenue confirms the collusion by the appellants. It is also found that when the credit involved in respect of the appellants was only about Rs.3.73 Lakhs Rs.8.17 Lakhs and Rs.8.13 Lakhs penalty of Rs.50 Lakhs each was imposed on the appellants beyond the provisions of Rule 26 as above. The impugned show cause notice and the impugned order are not on a reasonable foundation and are not legally also tenable - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of Job-Workers for Penalty under Rule 26 for Alleged Collusion Relevant legal framework and precedents: Rule 26 of the Central Excise Rules, 2002, as it existed during the relevant period, stipulates that any person who acquires possession of or deals in excisable goods liable to confiscation shall be liable to a penalty not exceeding the duty on such goods or Rs.10,000, whichever is greater. Circular No.703/19/2003-CX dated 25.03.2003 exempts job-workers from registration and record-keeping requirements unless they opt otherwise under sub-rule (1). Court's interpretation and reasoning: The Tribunal noted that the appellants were job-workers engaged in processing fabrics for the main noticee and were not required to maintain records or be registered under the Circular unless they exercised the option to do so. The show cause notice alleged collusion but failed to provide any positive evidence or demonstrate active participation by the appellants in the fraudulent availment of CENVAT credit. The Tribunal found the allegation of collusion to be a mere bland averment without factual foundation. Key evidence and findings: The show cause notice itself contained contradictory observations regarding receipt and removal of inputs by the main noticee. No concrete evidence was brought on record to establish that the appellants knowingly dealt with goods liable to confiscation or had knowledge of the fraud. Application of law to facts: Given the appellants' status as job-workers exempt from registration and record-keeping, and absence of proof of collusion, the Tribunal concluded that the appellants could not be held liable under Rule 26 for the alleged fraudulent availment of credit by the main noticee. Treatment of competing arguments: While the Revenue reiterated the findings of the impugned order, the Tribunal gave greater weight to the appellants' submissions highlighting factual inconsistencies and lack of evidence. The Tribunal emphasized the need for positive proof of collusion, which was missing. Conclusions: The appellants, as job-workers, were not liable for penalty under Rule 26 for alleged collusion in fraudulent availment of CENVAT credit. Issue 2: Justification and Quantum of Penalty Imposed under Rule 26 Relevant legal framework and precedents: Rule 26 prescribes a maximum penalty not exceeding the duty on such goods or Rs.10,000, whichever is greater. The penalty imposed on each appellant was Rs.50 Lakhs, substantially exceeding the duty involved. Court's interpretation and reasoning: The Tribunal observed that the duty involved in respect of the appellants was only about Rs.3.73 Lakhs, Rs.8.17 Lakhs, and Rs.8.13 Lakhs respectively, far less than the penalty imposed. The penalty of Rs.50 Lakhs each was therefore beyond the statutory limits prescribed by Rule 26 as it existed prior to 01.03.2007. Key evidence and findings: The impugned order did not justify the quantum of penalty in proportion to the duty involved. The Tribunal found the penalty to be disproportionate and not legally tenable. Application of law to facts: The Tribunal applied the statutory ceiling on penalty and concluded that the imposition of Rs.50 Lakhs penalty on each appellant was excessive and beyond the scope of Rule 26. Treatment of competing arguments: The Revenue did not provide counter-arguments justifying the high penalty. The Tribunal relied on the plain language of Rule 26 and the facts regarding duty involved. Conclusions: The penalty imposed on the appellants was excessive and not sustainable under Rule 26. Issue 3: Factual Inconsistencies and Legal Tenability of the Show Cause Notice and Impugned Order Relevant legal framework and precedents: Principles of natural justice and requirement of a reasonable foundation for issuance of show cause notices and imposition of penalty. Court's interpretation and reasoning: The Tribunal highlighted contradictions within the show cause notice itself regarding whether inputs were received at the factory or removed without payment of duty. Such inconsistencies undermined the credibility of the allegations. Key evidence and findings: The Tribunal noted that the show cause notice observed both non-receipt and removal of inputs without duty payment, which are mutually inconsistent. Moreover, no direct evidence was produced to implicate the appellants. Application of law to facts: Due to these inconsistencies and lack of positive proof against the appellants, the Tribunal found the show cause notice and order to lack a reasonable foundation and to be legally untenable. Treatment of competing arguments: The Revenue maintained the impugned findings, but the Tribunal prioritized the need for clarity and evidentiary support in penalty proceedings. Conclusions: The impugned show cause notice and order were not sustainable on the facts and law. 3. SIGNIFICANT HOLDINGS The Tribunal held: "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 to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or rupees ten thousand, whichever is greater." The Tribunal concluded that:
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