Bona fide excess Cenvat credit reversal with interest defeats penalty under the Cenvat Credit Rules, 2002.

Excess Cenvat credit taken under the Cenvat Credit Rules, 2002 was treated as a bona fide mistake where the appellant reversed the excess promptly after the audit objection and paid interest. Because the credit was not retained and the conduct did not indicate fraudulent availment, separate penal action under Rule 13(1) was considered unwarranted. The penalty was therefore set aside.

---

---

Issues: Whether the penalty imposed under Rule 13(1) of the Cenvat Credit Rules, 2002 was sustainable in a case where excess Cenvat credit had been taken and later reversed with payment of interest after the audit objection.

Analysis: The credit was found to have been taken in excess of the admissible amount under Rule 3(6)(a) of the Cenvat Credit Rules, 2002, but the appellant reversed the amount promptly when pointed out by the audit and also paid interest. On these facts, the conduct was treated as reflecting bona fide mistake rather than fraudulent availment, and the payment of interest further indicated compliance. In these circumstances, separate penal action was considered unwarranted.

Conclusion: The penalty under Rule 13(1) of the Cenvat Credit Rules, 2002 was set aside in favour of the appellant.

---