Bona fide credit reversal and revenue neutrality can defeat penalty, even where duty liability on capital goods survives.

Capital goods cleared to an ancillary unit beyond the permitted return period attracted duty under the CENVAT Credit Rules, 2002, but penalty was held unsustainable where the assessee reversed the credit promptly with interest and the record showed no fraud, suppression, or mala fide intent. The tribunal applied the bona fide mistake and revenue neutrality principles to the penalty question and set aside the penalty. The duty demand, however, was maintained because the statutory clearance condition was not met.

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Issues: Whether penalty was sustainable where capital goods were cleared to an ancillary unit without payment of duty, the credit was later reversed with interest, and the assessee claimed bona fide mistake and revenue neutrality.

Analysis: The clearance of capital goods to the job worker was governed by Rule 4(5)(a) of the CENVAT Credit Rules, 2002, but the facts showed that the goods were machines meant to remain with the job worker for a period beyond the permitted return period, requiring duty payment. At the same time, the credit had been reversed promptly after the lapse was pointed out, along with interest, and the record did not indicate any fraudulent intent, suppression, or ulterior motive. In these circumstances, the cited precedents on revenue neutrality and bona fide error were applied to the penalty question.

Conclusion: Penalty was not sustainable and was set aside, while the duty demand was maintained.

Final Conclusion: The appeal succeeded only on the penalty issue and otherwise failed on the duty liability.

Ratio Decidendi: Where duty-related credit is reversed promptly with interest and the default is attributable to a bona fide mistake without mala fide intent, penalty is not justified, even if the duty demand itself survives.

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