Voluntary reversal of inadmissible credit before show cause notice defeats penalty where mala fide intent is not established.

Penalty under Rule 13(2) read with Section 11AC was held unsustainable where CVD credit was voluntarily reversed with interest before the show cause notice. The assessee had reflected the availment in returns, and the reversal on its own correction did not, on the facts, establish deliberate wrongdoing or mala fide intent. As no fraudulent or contumacious conduct was shown, the penal levy was set aside, while the duty and interest remained payable.

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Issues: Whether penalty under Rule 13(2) of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 was justified when the assessee had availed CVD credit, later reversed the entire credit with interest on its own, and the reversal was made before issuance of the show cause notice.

Analysis: The credit was initially taken on imported goods and later reversed voluntarily along with interest before the show cause notice. The returns reflecting availment had been filed and no objection had been raised by the Revenue at the time of availment. On these facts, the subsequent reversal could not, by itself, establish deliberate wrongdoing or mala fide intention. The fact that the assessee itself corrected the mistake supported the view that the availment was a bona fide error and did not justify penal action.

Conclusion: Penalty was not sustainable and was set aside.

Final Conclusion: The duty and interest were maintained, but the penal levy was annulled because no mala fide could be attributed to the assessee on the facts found.

Ratio Decidendi: Where inadmissible credit is voluntarily reversed with interest before the show cause notice and the surrounding facts do not establish mala fide intent, penalty under the excise penalty provision is not warranted.

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