Cenvat credit reversal after flood loss did not justify penalty where credit was validly taken and later regularised.

Cenvat credit correctly availed on receipt of inputs was not made penal merely because the inputs were later destroyed in a flood before use. The credit was reversed with interest after the department pointed out the issue, and the Tribunal noted that similar facts had attracted no penalty where credit was originally valid and subsequently regularised. The department's cited authorities were held not to govern penalty in these circumstances. Penalty was therefore not imposable.

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Issues: Whether penalty was imposable where Cenvat credit had been correctly availed on receipt of inputs, the inputs were subsequently destroyed in flood before use, and the credit was reversed with interest after being pointed out by the department.

Analysis: The credit had been validly taken at the time of receipt of the inputs. The inputs were lost in floods before they could be used in manufacture. Though the loss was not intimated and the credit was not reversed immediately, the credit was reversed along with interest when the department pointed out the irregularity. In similar circumstances, the Tribunal had held that no penalty is leviable where credit was correctly taken initially and later reversed on being pointed out. The authorities cited by the department were found not to govern the issue of penalty in such facts.

Conclusion: Penalty was not imposable on the appellant.

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