Modvat credit reversal for exempted goods under Rule 57CC sustained, while personal penalty was set aside.

For exempted goods, Modvat credit had to be reversed at the percentage prescribed under Rule 57CC, and the admitted applicability of that provision justified the differential duty demand. The appellants' claim of ignorance and reliance on reversals under Rule 57C did not displace the statutory reversal requirement, so the demand was sustained. Personal penalty, however, was not justified where returns had been regularly filed, mala fide conduct was absent, and the appellants had not been told to reverse credit at the higher rate; the penalty was set aside.

---

---

Issues: Whether the appellants were liable to reverse Modvat credit at the prescribed percentage of the value of exempted goods under Rule 57CC, and whether the personal penalty imposed for the short reversal was sustainable.

Analysis: The appellants did not dispute the legal position that, in respect of exempted goods, reversal of Modvat credit had to be made at the rate prescribed under Rule 57CC. Their stand was confined to ignorance of that provision and an assertion that reversals were being made under Rule 57C. In view of the admitted applicability of Rule 57CC, the demand representing the differential amount was upheld. On penalty, the record showed regular filing of returns and absence of mala fide conduct, and the authorities had not advised the appellants to reverse credit at the higher rate. These circumstances justified interference with the penalty.

Conclusion: The demand of duty was sustained, but the personal penalty was set aside.

---