Cenvat credit penalty not justified when only procedural defect existed and substantive entitlement was otherwise established.

Penalty was unwarranted where Cenvat credit on imported goods was substantively admissible, as the duty element had been paid, the goods were received in the factory and used in manufacture, and the only defect was procedural non-production of the prescribed triplicate bill of entry copy. In the absence of mens rea and where the credit had already been paid before appeal, denial of credit could not support penal action. The stated principle is that penalty cannot rest on a mere procedural irregularity when substantive entitlement is established and no deliberate evasion is shown.

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Issues: Whether penalty was justified for availment of Cenvat credit on the strength of a xerox copy of the bill of entry, where the duty-related credit had been paid and no mens rea was found.

Analysis: The credit related to CVD actually paid on imported goods received in the assessee's factory and used in or in relation to manufacture. Denial of credit rested only on a procedural defect, namely non-use of the prescribed triplicate copy of the bill of entry under Rule 9(1) of the Cenvat Credit Rules, 2004. The lower authorities did not attribute any mens rea, and the credit amount had already been paid before the appeal was filed.

Conclusion: The penalty was not justified and was set aside.

Ratio Decidendi: Penalty is unwarranted where Cenvat credit is denied only for a procedural irregularity, the substantive entitlement is otherwise established, and no mens rea is shown.

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