Penalty under Rule 57U(6) fails where capital goods credit was lawfully taken and wrongful availment was not proved.

Penalty under Rule 57U(6) of the Central Excise Rules, 1944 could not be sustained where capital goods credit had been lawfully taken and there was no finding that the credit was wrongly availed by fraud, wilful misstatement, collusion, suppression of facts, or other intent to evade duty. The dispute related to non-payment of duty on removal of the capital goods, but that by itself did not satisfy the statutory preconditions for the penal provision. The penalty under Rule 57U(6) was therefore set aside, while the demand and the penalty under Rule 173Q remained undisturbed.

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Issues: Whether penalty under Rule 57U(6) of the Central Excise Rules, 1944 was sustainable when credit on capital goods had been correctly taken but duty was not paid at the time of removal of the capital goods.

Analysis: Rule 57U(6) visits a person with penalty only where credit has been taken wrongly by reason of fraud, wilful misstatement, collusion, suppression of facts, or contravention of the Act or rules with intent to evade duty. The record showed that the credit on the capital goods had been lawfully availed and that the dispute related to non-payment of duty on removal of the capital goods. In the absence of any finding that the credit itself was wrongly taken in the manner contemplated by the rule, the preconditions for invoking the penal provision were not satisfied.

Conclusion: The penalty under Rule 57U(6) was not warranted and was rightly set aside in favour of the assessee.

Final Conclusion: The demand and the penalty under Rule 173Q were left undisturbed, but the penal consequence under Rule 57U(6) could not be sustained.

Ratio Decidendi: Penalty under Rule 57U(6) can be imposed only when wrongful availment of credit is established with fraud, suppression, collusion, wilful misstatement, or similar intent to evade duty.

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