Suppression in Modvat credit reversal attracts penalty when unusable inputs are not disclosed or credited back to the department.

Penalty was held sustainable where Modvat credit had been taken and utilised, and the inputs were later destroyed or became unusable without reversal of the credit. The liability to reverse arose once the inputs could no longer support the credit already availed, and mere reference in the balance sheet to disposal of raw materials did not amount to disclosure of that obligation or of the actual utilisation of credit. Failure to reverse the credit or repay it after destruction of the inputs, coupled with nondisclosure to the department, constituted suppression of facts with intent to evade duty and attracted penalty under the credit provisions.

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Issues: Whether penalty was sustainable where modvat credit had been taken and utilized, the inputs were later destroyed or rendered unusable, and the reversal of credit was not disclosed to the department.

Analysis: The liability to reverse credit arose once the inputs became unusable and the credit already availed had been utilized towards duty on final products. The fact that the balance sheet referred to disposal of raw materials did not amount to disclosure of the obligation to reverse the credit or of the actual utilization of the credit already taken. Since the appellant did not reverse the credit or repay the amount even after the inputs were destroyed and the factory reopened, the non-disclosure of the relevant fact to the department constituted suppression. Penalty under the relevant Modvat and Cenvat provisions follows where credit is taken or utilized wrongly on account of suppression of facts with intent to evade duty.

Conclusion: The penalty was rightly imposed and the challenge to the impugned order failed.

Ratio Decidendi: Where credit already availed is utilized and the inputs later become unusable, failure to reverse the credit and disclose that liability to the department amounts to suppression of facts and attracts penalty under the provisions governing wrong availment or wrong utilization of credit.

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