Fraudulent Modvat credit on undelivered goods justified restoring the higher penalty under Rule 173Q.

Penalty reduction under Rule 173Q was held unjustified where Modvat credit had been availed on goods not actually received. The respondents had taken credit on 1,000 cots that were not received, and this fraudulent availment justified a stricter penalty rather than a nominal one. The order reducing the penalty was found erroneous because the minimum penalty prescribed under Rule 173Q was Rs. 5,000, and the facts warranted penal action at the higher level. The penalty of Rs. 25,000 was restored in favour of the Revenue.

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Issues: Whether the reduction of penalty from Rs. 25,000 to Rs. 2,500 under Rule 173Q was justified when credit had been availed on goods not received.

Analysis: The respondents had not received 1,000 pieces of cots, yet Modvat credit of Rs. 4,58,582 was taken without justification. On these facts, the reduction of penalty by the Commissioner (Appeals) was found to be erroneous. The order also noted that the minimum penalty prescribed under Rule 173Q was Rs. 5,000, and that fraudulent availment of credit warranted a heavier penalty rather than a nominal one.

Conclusion: The reduction of penalty was not justified. The penalty of Rs. 25,000 was restored, in favour of the Revenue.

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