Wrongly availed Modvat credit supported penalty, but voluntary debit justified reduction in the penalty amount.

Wrong availment of Modvat credit justified imposition of penalty under the provisions invoked in the show cause notice, and the mere reference to additional provisions in the adjudication order did not vitiate the penalty once the default was otherwise established. The penalty therefore remained sustainable in principle. However, voluntary debit of the credit and the surrounding facts warranted interference with the quantum, so the penalty was reduced to Rs. 5,000 while the rest of the order was left undisturbed.

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Issues: Whether penalty was sustainable for wrong availment of Modvat credit and whether its quantum required reduction in the facts of the case.

Analysis: The appeal was confined to the penalty component, while the duty demand was not contested. Penalty was held to be imposable for wrongly availing Modvat credit under the rules invoked in the show cause notice. The mention of additional provisions in the adjudication order did not invalidate the penalty. However, the fact that the credit had been voluntarily debited and the surrounding circumstances justified interference with the quantum of penalty.

Conclusion: The penalty was upheld in principle but reduced to Rs. 5,000.

Final Conclusion: The appeal succeeded only to the limited extent of reducing the penalty, while the impugned order otherwise remained undisturbed.

Ratio Decidendi: Where Modvat credit is wrongly availed, penalty may be imposed under the provisions invoked in the show cause notice, and the mere reference to additional provisions in the adjudication order does not vitiate the penalty if the default is otherwise established; the quantum may still be moderated on the facts.

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