Penalty for Cenvat credit misuse fails where excess credit arose from bona fide statutory misinterpretation without evasion

Penalty under Section 11AC was treated as inapplicable where excess Cenvat credit on capital goods arose from a mistaken understanding of the bar under Rule 4(4) of the Cenvat Credit Rules, 2002. The assessee had reversed the credit with interest after audit objection, and the record did not establish suppression, mala fide intent, or deliberate evasion. In those circumstances, the Tribunal held that the penal provision could not be invoked and the deletion of penalty was affirmed.

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Issues: Whether penalty under Section 11AC was sustainable where excess Cenvat credit was availed on capital goods and the assessee had also claimed depreciation under the Income-tax Act.

Analysis: Rule 4(4) of the Cenvat Credit Rules, 2002 restricted credit where depreciation under Section 32 of the Income-tax Act, 1961 was claimed on the duty component of capital goods. The credit was reversed with interest after audit objection. The conduct was treated as a wrong interpretation of the statutory bar, and no mala fide intention to evade duty was found. In the absence of an element of suppression or deliberate evasion, the penal provision was held inapplicable.

Conclusion: Penalty under Section 11AC could not be imposed, and the Revenue's challenge to deletion of penalty failed.

Final Conclusion: The order deleting penalty was affirmed and the Revenue's appeal was rejected.

Ratio Decidendi: Penalty under Section 11AC is not attracted for a bona fide statutory misinterpretation where the record does not establish mala fide intent or evasion.

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