Wrongful Modvat credit availment attracts penalty, but mitigating facts may justify reduction in quantum.

Wrongful availment of Modvat credit attracts penalty under Rule 173Q(1)(bb) of the Central Excise Rules, 1944, where the availment is admitted. The filing of RT 12 returns with supporting invoices or bills of entry and reversal of credit after audit objection were treated as mitigating circumstances affecting only the quantum of penalty. The legal effect is that penalty remains leviable, but the authority may reduce it on the facts. On that basis, the penalty was moderated and limited relief was granted on quantum.

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Issues: Whether penalty was leviable for wrong availment of Modvat credit, and if so, whether the amount of penalty required reduction.

Analysis: The appeal was confined to the penalty. The wrong availment of Modvat credit was not disputed, and Rule 173Q(1)(bb) of the Central Excise Rules, 1944 empowered imposition of penalty for such wrongful availment. The filing of RT 12 returns with invoices or bills of entry and the reversal of the credit after audit objection were relevant mitigating circumstances, showing that the maximum penalty was not warranted. The discretion lay in the quantum of penalty, not in withholding penalty altogether.

Conclusion: Penalty was rightly imposable, but it was reduced to Rs. 2 lakhs.

Final Conclusion: The appeal succeeded only to the extent of reduction in penalty, and the assessee obtained limited relief on quantum.

Ratio Decidendi: Where wrongful availment of Modvat credit is admitted, penalty is attracted under Rule 173Q(1)(bb) of the Central Excise Rules, 1944, though the amount may be moderated on mitigating facts.

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