Inadmissible credit on capital goods must be reversed, while penalty provisions setting a ceiling do not mandate the maximum amount.

Wrongful credit on capital goods used exclusively for non-dutiable production was held inadmissible, and reversal of the credit was upheld because the availment contravened the applicable prohibition. On penalty, the Tribunal held that wrongful availment justified punishment, but the excise provision fixed only the ceiling and did not require a penalty equal to the credit involved. The penalty was therefore reduced to a lesser amount, reflecting discretion to impose a lower sum on the facts.

---

---

Issues: (i) Whether credit wrongly taken on capital goods used exclusively for production of non-dutiable goods was liable to be reversed; (ii) Whether penalty equal to the duty amount was mandatory under the governing excise provisions.

Issue (i): Whether credit wrongly taken on capital goods used exclusively for production of non-dutiable goods was liable to be reversed.

Analysis: The availment of credit was contrary to the prohibition applicable to the capital goods. The Tribunal found that the credit had been taken wrongly and that the reversal of the inadmissible credit was justified.

Conclusion: The reversal of credit was upheld against the assessee.

Issue (ii): Whether penalty equal to the duty amount was mandatory under the governing excise provisions.

Analysis: The Tribunal held that although penalty was warranted for wrongful availment of credit, the statutory provision did not compel imposition of penalty at the maximum level. The penalty provision was treated as laying down only the ceiling and not a mandatory equivalent quantum.

Conclusion: The penalty was reduced from the amount equal to the credit involved to a lesser sum of Rs. 5,000.

Final Conclusion: The assessee succeeded only in securing reduction of penalty, while the disallowance and reversal of the inadmissible credit were maintained.

Ratio Decidendi: Where a penalty provision prescribes only the maximum limit, the adjudicating authority is not bound to impose penalty at that maximum and may determine a lesser amount on the facts of the case.

---