Voluntary reversal of inadmissible Cenvat credit does not defeat Section 11AC penalty when correction follows departmental detection.

Penalty under Section 11AC of the Central Excise Act, 1944 remained sustainable where inadmissible Cenvat credit was reversed only after the department pointed it out. The High Court held that the Tribunal misread the record in treating the reversal as voluntary, since the authorities had found that the credit was taken inadmissibly and reversed only after objection and assurance by the assessee. On those facts, the timing of reversal did not negate the statutory basis for penalty, particularly where suppression and intent to evade had been recorded.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 could be avoided on the ground that the Cenvat credit was reversed before issuance of the show cause notice, despite the finding that the credit had been taken inadmissibly and only reversed after being pointed out by the department.

Analysis: The Tribunal had proceeded on the footing that the credit was reversed voluntarily and, on that basis, set aside the penalty. The record, however, showed that the adjudicating authority and the appellate authority had found that the inadmissible credit was not reversed voluntarily but only after the departmental objection and after an assurance by the assessee. On those facts, the Court held that the Tribunal misread the evidence and erred in treating the reversal as voluntary. In such circumstances, the timing of reversal did not displace the statutory conditions for penalty where suppression and intent to evade were recorded.

Conclusion: The question was answered in favour of the Revenue and against the assessee; penalty under Section 11AC was held to be sustainable.

Final Conclusion: The departmental appeal succeeded, and the Tribunal's view was rejected on the ground that the assessee's reversal of inadmissible credit was not voluntary but was made after detection by the department.

Ratio Decidendi: Where inadmissible credit is reversed only after it is pointed out by the department, the reversal cannot be treated as voluntary so as to defeat penalty under Section 11AC of the Central Excise Act, 1944.

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