Penalty under Rule 173Q fails where Modvat credit is regularised and no intent to evade duty is found.

Penalty under Rule 173Q of the Central Excise Rules was examined in the context of Modvat credit on capital goods taken without the installation certificate required by Rule 57Q(7). Although that omission constituted a technical contravention, the credit had been allowed by the lower authorities and was treated as regularised, so clause (bb) of Rule 173Q(1) was not attracted. Clause (d) also failed because penalty required contravention with intent to evade duty, and no such intent had been recorded. On those facts, penalty under Rule 173Q was not leviable and was set aside.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable for availing Modvat credit on capital goods without producing the installation certificate required by Rule 57Q(7), and whether the facts attracted either clause (bb) or clause (d) of Rule 173Q(1).

Analysis: The availment of credit without the installation certificate amounted to contravention of Rule 57Q(7), but the lower authorities had allowed the credit and thereby regularised it. On that footing, the case did not involve irregular availment of Modvat credit so as to attract clause (bb) of Rule 173Q(1). As regards clause (d), penalty could be imposed only for contravention of the Central Excise Rules with intent to evade payment of duty, and no such finding of intent to evade had been recorded by either authority below.

Conclusion: Penalty under Rule 173Q was not leviable on the facts proved and the penalty was liable to be set aside.

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