Fraudulent Modvat credit attracts penalty on the credit taken, not merely the amount actually utilised before detection.

In cases of fraudulent availment of Modvat credit, penalty under Section 11AC is to be computed with reference to the credit wrongly taken, not merely the amount later utilised before detection. The Tribunal noted that Rule 57-I(4) links the penalty to the credit taken, and therefore a reduction of penalty to the utilised portion alone was not justified where the credit itself was fraudulently availed. The operative effect is that penalty exposure extends to the full wrongful credit entry rather than only the portion actually used.

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Issues: Whether, in a case of fraudulent availment of Modvat credit, penalty under Section 11AC was warranted with reference to the credit taken rather than the amount actually utilised.

Analysis: The Commissioner (Appeals) had accepted that the facts attracted penalty under Section 11AC, but reduced the penalty by linking it only to the amount of credit utilised. The Tribunal noted that Rule 57-I(4) provides for penalty with reference to the credit taken. Since the credit was fraudulently availed, the basis of penalty was the amount wrongly taken and not merely the portion that had been utilised before detection.

Conclusion: The Revenue's contention was accepted and the penalty could not be restricted to the utilised amount alone.

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