Case Law Details
Pranatharthiharan Sridharan Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
From the plain reading of Rule 15(1), we find that a person shall be liable to penalty who takes or utilize Cenvat credit in respect of input or capital goods or input services wrongly or in contravention of any of the provisions of these Rules. In the facts of the present case, it is M/s. Diamond Power Transformers Limited who has availed fraudulent Cenvat credit, the appellant being employee Director has not availed Cenvat credit for himself therefore, Rule 15(1) is not applicable on the person who has neither availed Cenvat credit nor is the beneficiary of Cenvat credit. Accordingly, penalty under Rule 15(1) was wrongly imposed on the appellant.
A plain reading of the said Rule 15 of CCR, 2004, reveals that it consists of five sub-rules for different situations and none of these sub-rules directs imposition of personal penalty on the employees of an erring assessee under the said rule. Besides, there is no mention of the relevant sub-rule, as applicable to the appellants, in the notice nor confirmed in the order. It is a settle principle of law that penal provisions need strict interpretation and a person could only be able to defend his case only when the particular provision under which he is proposed to be penalized, is mentioned in the notice itself.
CESTAT held that penalty under Rule 15(1) on the present appellant, who is merely an employee of the Company, is not sustainable.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant is an employee Director in the Company namely M/s. Diamond Power Transformers Limited. A penalty of Rs. 2,28,65,888/- equal to duty evaded by M/s. Diamond Power Transformers Limited was imposed on the appellant, alleging that he was overall in-charge of the Company and had the knowledge of wrong availment of Cenvat credit by M/s. Diamond Power Transformers Limited. Accordingly, penalty under Rule 15(1) of Cenvat Credit Rules, 2004 was imposed. Being aggrieved by the said imposition of penalty in impugned order-in-original, the appellant filed the present appeal.
2. Shri S. Suryanarayanan, learned Counsel appearing on behalf of the appellant submits that appellant Shri Pranatharthiharan Sridharan is a technocrat and employed as Director operations and looking after production activities of the Company. The appellant being a technical person he would not involved in the offense of wrong availment of credit therefore, penalty imposed under Section 15(1) is not imposable. He further submits that the show cause notice is time-barred as the same was not served to the appellant in time therefore the show cause notice is liable to be quashed being time-barred. He placed reliance on the following judgments:-
(a) Mukesh Dani vs. CCE Surat – 2017 (3) TMI 1145-CESTAT Ahmedabad.
(b) Ashok Kumar H Fulwadhya vs. UOI – 2010 (251) ELT 336 (Bombay)
(c) CCE vs. Chougula & Ors – 2016 SCC online CESTAT 2019
(d) Manohar Singh Rana & Ors vs. CCE, Indore – 2017 (6) TMI 577 CESTAT
3. Shri Ghanasyam Soni, learned Addl. Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.
4. We have carefully considered the submissions made by both the sides and perused the record. The appellant is an employee Director in the Company M/s. Diamond Power Transformers Limited who was alleged to be indulged in fraudulent availment of Cenvat credit. Penalty in the present case was imposed under Section 15(1) of Cenvat Credit Rules, 2004 on the appellant on the ground that he was overall in-charge and involved in the fraudulent availment of Cenvat credit. For the sake of ease, we reproduce below the Rule 15 of Cenvat Credit Rules, 2004:-
“[RULE 15. Confiscation and penalty. — (1) 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 term of clause (a) or clause (b) of subsection (1) of section 11AC of the Excise Act or sub-section (1) of section 76 of the Finance Act (32 of 1994), as the case may be]”.
From the plain reading of Rule 15(1), we find that a person shall be liable to penalty who takes or utilize Cenvat credit in respect of input or capital goods or input services wrongly or in contravention of any of the provisions of these Rules. In the facts of the present case, it is M/s. Diamond Power Transformers Limited who has availed fraudulent Cenvat credit, the appellant being employee Director has not availed Cenvat credit for himself therefore, Rule 15(1) is not applicable on the person who has neither availed Cenvat credit nor is the beneficiary of Cenvat credit. Accordingly, penalty under Rule 15(1) was wrongly imposed on the appellant. This issue has been considered by this Tribunal in the case of Mukesh Dani vs. CCE, Surat (supra) wherein the following order was passed:-
“5. Heard both sides and perused the records. The short point needs to be considered is: whether personal penalty on the appellants who were at the relevant time employees of company, is sustainable under Rule 15 of CCR, 2004. Before proceeding to consider the arguments advanced by both sides, it is necessary to refer to Rule 15 of CCR, 2004, which reads as under :-
“15. Confiscation and penalty. – (1) If any person, takes CENVAT credit in respect of input or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods specified in rule 9, or contravenes any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater.
(2) In a case, where the CENVAT credit in respect of input or capital goods has been taken or utilized wrongly on account of fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.
(3) If any person, takes CENVAT credit in respect of input services, wrongly or without taking reasonable steps to ensure that appropriate service tax on the said input services has been paid as indicated in the document accompanying the input services specified in rule 9, or contravenes any of the provisions of these rules in respect of any input service, then, such person, shall be liable to a penalty which may extend to an amount not exceeding ten thousand rupees.
(4) In a case, where the CENVAT credit in respect of input services has been taken or utilized wrongly by reason of fraud, collusion, wilful mis-statement, suppression of facts, or contravention of any of the provisions of the Finance Act or of the rules made thereunder with intention to evade payment of service tax, then, the provider of output service shall also be liable to pay penalty in terms of the provisions of section 78 of the Finance Act.
(5) Any order under sub-rule (1), sub-rule (2), sub-rule (3) or sub-rule (4) shall be issued by the Central Excise Officer following the principles of natural justice.”
6. A plain reading of the said Rule 15 of CCR, 2004, reveals that it consists of five sub-rules for different situations and none of these sub-rules directs imposition of personal penalty on the employees of an erring assessee under the said rule. Besides, there is no mention of the relevant sub-rule, as applicable to the appellants, in the notice nor confirmed in the order. It is a settle principle of law that penal provisions need strict interpretation and a person could only be able to defend his case only when the particular provision under which he is proposed to be penalized, is mentioned in the notice itself. Further, the case laws referred to by the ld. AR for the Revenue cannot be made applicable to the present case inasmuch as in the instant case, personal penalty has been proposed to be imposed on the appellants under Rule 15 of CCR, 2004, and the authority below has nowhere observed that the correct Rule is other than Rule 15 of CCR, 2004, hence, the plea raised by the ld. AR for the Revenue cannot be accepted at this stage.
7. In the result, the impugned order is set aside to the extent of imposition of personal penalty on the appellants under Rule 15 of CCR, 2004, and the appeals are accordingly allowed.”
5. In view of our above observations which are directly supported by the aforesaid decision, penalty under Rule 15(1) on the present appellant, who is merely an employee of the Company, is not sustainable. Accordingly, the impugned order is set-aside and the appeal is allowed with consequential relief.
(Pronounced in the open court on 24.03.2023)
