Bona fide belief in Modvat credit disputes must be proved from the record; penalty may stand but be reduced.

Penalty for irregular Modvat credit on weigh bridges installed outside the factory was upheld because the underlying credit dispute had already been decided against eligibility of capital goods used outside the factory. The assessee's plea of bona fide belief was rejected as it had not been raised at the earlier stage and was treated as an afterthought unsupported by the record. The cited precedent on sugar manufacture was found not to establish that weighment at an external weighbridge formed part of the manufacturing process. While the penalty remained sustainable, its quantum was required to match the nature of the established infringement, so the amount was reduced.

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Issues: Whether the penalty imposed for irregular availment of Modvat credit on weigh bridges installed outside the factory was sustainable, and whether the assessee's plea of bona fide belief justified deletion or reduction of the penalty.

Analysis: The credit dispute had already been settled against eligibility of capital goods used outside the factory, and the surviving controversy concerned only the penalty. The assessee's reliance on bona fide belief was not accepted because no such plea had been raised at the earlier stage and the asserted understanding was treated as an afterthought. The reasoning also held that the cited precedent on the manufacture of sugar did not support a belief that weighment at an external weighbridge formed part of the manufacturing process. At the same time, the quantum of penalty was required to correspond to the nature of the offence established in the proceedings.

Conclusion: The penalty was held to be sustainable, but its amount was reduced.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the substantive objection to the credit had no relief.

Ratio Decidendi: A plea of bona fide belief must be supported by the record and cannot be accepted as an afterthought; even where penalty is justified, its quantum should be commensurate with the proven infringement.

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