Penalty under Central Excise Rules was held unsustainable where credit was disclosed, frozen by department, and never used.

Penalty under Rule 173Q of the Central Excise Rules, 1944 was found unsustainable where credit was taken with intimation to the department, remained frozen at the department's instance, and was never utilised for duty payment. The lower appellate authority noted that the reversal was made under protest after the show-cause notices and that there was no concealment or deliberate and wilful defiance of law. The original authority had imposed penalty without citing the penal provision or addressing these facts, so the Commissioner (Appeals)'s order was upheld and the Revenue's appeal was dismissed.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable when the credit had been taken with intimation to the department, remained frozen at the department's instance, was not utilised, and there was no finding of deliberate and wilful defiance of law.

Analysis: The findings recorded in the lower appellate order showed that the credit was taken openly, was kept frozen by the department, and was never used for payment of duty. The subsequent reversal was under protest after receipt of the show-cause notices. On these facts, there was no concealment from the department and the dispute related to admissibility of credit. The original authority had imposed penalty without citing a penal provision and without examining these findings, while the appellate authority had specifically found absence of deliberate and wilful defiance of law.

Conclusion: The penalty was not sustainable and the order of the Commissioner (Appeals) was rightly upheld. The appeal of the Revenue was dismissed.

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