Cenvat credit penalties fail where reversal is prompt and no allegation of intent to evade is made

Penalties for wrongful availment of cenvat credit were held unsustainable where the notice and lower orders contained no specific allegation of suppression, misdeclaration or intent to evade duty. The record showed that the credit was reversed and the amount was paid back promptly once the mistake was pointed out, which supported the absence of deliberate evasion. In that setting, penalty provisions could not be invoked, particularly because Section 11A(2B) of the Central Excise Act recognises closure of the matter on payment of duty and interest when suppression or misdeclaration is absent. The penalties were set aside in favour of the assessee.

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Issues: Whether penalties could be sustained for wrongful availment of cenvat credit where the credit was reversed promptly and the show cause notice did not allege suppression, misdeclaration or intent to evade duty.

Analysis: The notice and the orders of the lower authorities did not contain any specific allegation that the credit was taken deliberately or with intent to evade duty. The record also showed that the amount was paid back when the mistake was pointed out. In such circumstances, invocation of penalty provisions was not justified, particularly when the statutory scheme under Section 11A(2B) of the Central Excise Act, 1944 recognises conclusion of the matter on payment of duty and interest in the absence of suppression or misdeclaration.

Conclusion: The penalties were not sustainable and were set aside in favour of the assessee.

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