Cenvat credit penalty reduced where duty was paid before notice, while credit reversal for exempted goods was upheld.

Wrongful availment of Cenvat credit on inputs used in exempted final products was not disputed, and the credit reversal was confirmed. The only issue was penalty, and the Tribunal held that payment of the duty amount before issuance of the show cause notice made a penalty equal to the duty amount unwarranted on the facts. The penalty was therefore reduced to Rs. 1 lakh.

---

---

Issues: Whether the penalty imposed for wrongful availment of credit on inputs used in the manufacture of exempted final products was liable to be sustained in full or reduced in view of the payment made before issuance of the show cause notice.

Analysis: The appeal did not dispute the reversal of credit, as the inputs had admittedly been used in the manufacture of exempted final products. The only surviving controversy concerned the penalty. Taking note of the fact that the duty amount had been deposited before issuance of the show cause notice, the Tribunal considered that imposition of a penalty equal to the duty amount was not warranted on the facts.

Conclusion: The reversal of Cenvat credit was confirmed, but the penalty was reduced from Rs. 49,26,266 to Rs. 1 lakh.

---