Equivalent penalty under Cenvat credit rules needs proof of fraud or intent to evade duty, not mere reversal errors.

Equivalent penalty under Rule 15(2) of the Cenvat Credit Rules, 2002 applies only where wrong credit or utilisation is shown to arise from fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. Mere non-reversal of Special Additional Duty on imported inputs, without proof of deliberate evasion or contumacious conduct, does not justify automatic penalty. Where the credit was reversed and the circumstances did not establish mens rea, the penalty was held unsustainable and was set aside.

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Issues: Whether equivalent penalty was sustainable under Rule 15(2) of the Cenvat Credit Rules, 2002 for non-reversal of Special Additional Duty when the imported inputs were cleared as such.

Analysis: Rule 15(2) authorises equivalent penalty only where Cenvat credit is taken or utilised wrongly by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention of the rules with intent to evade duty. The amount involved was small, the credit had been reversed, and the circumstances did not establish a deliberate intent to evade duty. Penalty is not automatic merely because the statute provides for it, and it is warranted only where dishonest or contumacious conduct is shown.

Conclusion: Equivalent penalty under Rule 15(2) was not justified and was set aside; the assessee succeeded on the penalty issue.

Final Conclusion: The penalty portion of the impugned order was overturned, while the appeal succeeded only to that extent.

Ratio Decidendi: Equivalent penalty under Rule 15(2) requires proof of fraud or similar culpable conduct with intent to evade duty; mere erroneous credit or omission, without such mens rea, does not justify mandatory penalty.

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