PLA credit taken before cheque realisation attracted penalty, but the amount was reduced as disproportionate to the brief delay.

Taking PLA credit on the date cheques were deposited, and clearing excisable goods before the cheques were realised, attracted penalty because the credit was availed before actual banking clearance. However, where the delay between deposit and realisation was only about two days and the cheques were honoured shortly thereafter, the penalty was found to be disproportionate to the conduct. The penalty was therefore upheld in principle but reduced substantially to a nominal amount, reflecting the limited period of delay and the absence of serious prejudice.

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Issues: Whether the penalty imposed for taking PLA credit on the date of depositing cheques, and clearing excisable goods before the cheques were realized, was excessive.

Analysis: The credit was taken on the date of deposit of the cheques, before their clearance in the bank, and the goods were cleared in the intervening period. The delay between deposit and realization was only about two days, and the cheques were in fact realized within a short time. On these facts, the conduct warranted penalty, but the amount imposed was found to be disproportionate to the circumstances.

Conclusion: The penalty was held to be payable, but its quantum was reduced from Rs. 5 lakhs to Rs. 20,000/-.

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