Bona fide wrong Cenvat credit reversal with interest limits penalty where no intent to evade duty is shown

Wrong availment of Cenvat credit taken under a bona fide mistake, later reversed with interest before adjudication, did not justify a substantial penalty where the notice alleged no deliberate intent to evade duty. The ineligible credit related to education cess on basic customs duty during the initial levy period, and the absence of mens rea made full penal consequences unwarranted. The penalty was therefore restricted to a reduced amount under the applicable Cenvat credit penalty provision.

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Issues: Whether penalty for wrongly availing and utilising Cenvat credit was sustainable where the credit was taken under a bona fide mistake, the amount was reversed with interest, and there was no allegation of deliberate intention to evade duty.

Analysis: The wrong credit related to education cess on basic customs duty taken during the initial period of levy. The entire wrongly availed credit was reversed and interest was paid before adjudication. The show cause notice did not allege any deliberate attempt to evade duty. In these circumstances, the mistaken availment was treated as bona fide, and the continuance of a substantial penalty was found unwarranted under the penal provision applicable to Cenvat credit violations.

Conclusion: Penalty was not justified at the level sustained by the appellate authority and was reduced to Rs. 10,000.

Ratio Decidendi: Where ineligible Cenvat credit is taken by mistake, subsequently reversed with interest, and no deliberate intent to evade duty is alleged or established, only a reduced penalty consistent with the penal rule is warranted.

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