Penalty for wrong Modvat credit was set aside because the credit was reversed before notice and no intent to evade duty was shown.

Penalty under Rule 173Q was not justified where the assessee wrongly availed Modvat credit but reversed it before the show cause notice and informed the department of the error. The decisive factor was the absence of intention to evade duty or defraud the Revenue; without such culpable intent, the factual basis for penalty was not made out. Relief was therefore available to the assessee.

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Issues: Whether penalty was exigible under Rule 173Q when the assessee had wrongly availed Modvat credit but reversed it before issuance of the show cause notice and there was no intention to evade duty or defraud the Revenue.

Analysis: The credit wrongfully taken was admittedly reversed by the assessee before the show cause notice was issued, and the department was informed of the mistake. On these facts, the essential element of intention to evade duty or to defraud the Revenue was absent. In the absence of such culpable intent, the factual basis for imposing penalty was not made out.

Conclusion: Penalty under Rule 173Q was not justified and the assessee was entitled to relief.

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