Mandatory penalty for wrong Cenvat credit fails without intent to evade duty and when payment precedes notice

Mandatory penalty for wrong Cenvat credit utilization was held unjustified where the contravention was found to be an inadvertent over-credit and no intent to evade duty was established. The reasoning noted that the assessee had already paid the duty before issuance of the show cause notice, and the lower authorities had not adequately considered the explanation that the excess credit arose by oversight. On those facts, the foundation for penalty under Section 11AC was not made out, and the impugned penalty order was treated as unsustainable.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act was sustainable for wrong availment of Cenvat credit, where the duty was paid before issuance of the show cause notice and the contravention was claimed to be inadvertent.

Analysis: The admitted contravention was wrong availment of Cenvat credit under Rule 3(3) of the CENVAT Credit Rules, 2001 for payment of duty for the relevant months. The decisive question was whether that contravention was committed with intent to evade duty. The reasoning also noted that the lower authorities had not properly considered the specific explanation that the excess credit was taken by oversight. Since the duty amount had already been paid before the show cause notice, the foundation for mandatory penalty under Section 11AC was not made out on the facts found.

Conclusion: The penalty was not justified and the assessee succeeded on the issue.

Final Conclusion: The impugned penalty order was unsustainable, and the appeal resulted in relief to the assessee.

Ratio Decidendi: Mandatory penalty under Section 11AC is not warranted where the alleged duty default arose from wrong credit utilization without established intent to evade duty, particularly when the duty had been paid before issuance of the show cause notice.

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