Pre-notice reversal of excess Modvat credit bars penalty under Rule 173Q where the default is corrected in time.

Excess Modvat credit reversed by the assessee in the same month, before issuance of the show cause notice, was treated as a curative step that removed the basis for penalty. Applying its earlier decisions, CEGAT held that where the default is corrected before notice, penalty under Rule 173Q of the Central Excise Rules is not justified on the same lapse. On those facts, the penalty was held not imposable and the appeal succeeded.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules was leviable when excess Modvat credit taken by the assessee was reversed before issuance of the show cause notice.

Analysis: The assessee had taken excess Modvat credit and reversed it in the same month, before the show cause notice was issued. The Tribunal followed its earlier decisions holding that where corrective action is taken before notice, penalty is not justified on the same default.

Conclusion: Penalty under Rule 173Q was not imposable on the assessee in these facts, and the appeal succeeded.

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