Penalty for alleged wrongful Cenvat credit use fails where no factual finding establishes contravention.

Penalty under Rule 25 of the Central Excise Rules, 2001 read with section 11AC of the Central Excise Act, 1944 cannot be sustained where no authority records an adverse finding on the core allegation of wrongful utilisation of accumulated Cenvat credit and the material is not analysed to establish contravention of Rule 8(1). The proceedings were based on an asserted use of accumulated credit to pay duty, but the demand was dropped and the factual foundation for breach was not proved. On that basis, the penalty order was liable to be set aside.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2001 read with Section 11AC of the Central Excise Act, 1944 could be imposed when neither authority recorded a finding on the factual allegation that the assessee had wrongly utilised accumulated Cenvat credit for payment of duty and there was no analysed material supporting contravention of Rule 8(1) of the Central Excise Rules, 2001.

Analysis: The proceedings were founded on the allegation that duty was paid by using Cenvat credit accumulated after the period for which duty was demanded. The original authority dropped the demand, and the lower appellate authority accepted that finding, yet still proceeded to impose penalty. No finding was recorded on the core factual allegation and the material on record was not analysed to test its truth. In the absence of an adverse finding on contravention, the foundation for penalty was lacking.

Conclusion: Penalty could not be sustained and the order imposing penalty was liable to be set aside.

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