Bona fide reversal of wrongly availed credit before show cause notice bars penalty absent mala fide intent.

Penalty was held unsustainable where wrongly availed credit had been reversed with interest before issuance of the show cause notice, and the lapse was found to be a bona fide procedural error without mala fide intent. The adjudicatory finding accepted that the omission arose from lack of communication and not from any attempt to derive undue advantage. The appellate authority relied on precedent supporting the view that penalty is not justified in such circumstances, while the Revenue's cited decisions were treated as inapplicable. On that basis, the assessee succeeded on the penalty issue.

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Issues: Whether penalty was sustainable where the assessee had reversed the wrongly availed credit with interest before issuance of the show cause notice and the lapse was found to be a bona fide mistake without mala fide intent.

Analysis: The credit reversal was made voluntarily on being pointed out, together with interest, before issuance of the show cause notice. The adjudicatory finding accepted that the omission occurred due to lack of communication and not with any intention to derive undue advantage. The precedent relied upon by the appellate authority supported the view that penalty is not justified in such circumstances, and the Revenue's cited decisions were found not directly applicable.

Conclusion: Penalty was not sustainable and the assessee succeeded on the issue.

Ratio Decidendi: Where wrongly availed credit is reversed with interest before the show cause notice and the lapse is a bona fide procedural error without mala fide intention, imposition of penalty is not justified.

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