CENVAT Credit - Wrong Credit - Penalty - validity of Rule 15 upheld - HC
AS per Rule 15 of the CENVAT Credit Rules:
(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 not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees whichever is greater.
(2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Excise Act or the rules made thereunder with intent 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.
Recently, the validity of Rule 15(2) was challenged as ultra vires the Central Excise Act, 1944. The grounds were that section 37 does not authorise the delegated legislation to frame any rules for recovering penalty. In absence of specific powers for framing rules for levying penalty, the delegated legislation exceeded its limits of delegation in framing such rules. The penalty is also in the nature of compulsory exaction of tax of course of penal nature. In view of Article 265 of the Constitution, there could be no levy of tax without the authority of law. It was contended that with introduction of CENVAT regime whenever found necessary, the legislation did make changes in section 37 itself.
The High Court observed that there is always a presumption of constitutionality of statutory provision. Such presumption is available also in cases of delegated legislation. A piece of delegated legislation does not enjoy the same level of immunity as the Act of State or Central legislature. However, there are well laid down parameters within which a delegated legislation can be questioned.
The High Court noted that Sub-section (1) of section 37 permits the Central Government to make rules to carry into effect the purpose of the Act, which would include collection of duty and penalty when the occasion so arises. Clause (d) of sub-section (4) of section 37 authorises the rule making body to frame rules for confiscation and collection of penalty when it is found that any manufacturer, producer or licensee of warehouse has contravened the provisions any provisions of such rule with intent evade payment of such duty.
So, the High Court did not find any substance in the challenge raised by the petitioner to the rule 15(2) of the CENVAT Credit Rules, 2004.
The petition was therefore, dismissed.
We bring you this High Court Order today.