Suppression of facts in cenvat credit reversal disputes supports penalty where unusable inputs were not disclosed to the department.

Penalty under the excise credit provisions is attracted where modvat or cenvat credit has been taken and utilised on inputs that later become unusable, and the material fact of such utilisation and the resulting duty liability is not disclosed to the department. Mere reference in the balance sheet is not sufficient disclosure of the credit transaction or the need to reverse it. The manufacturer is required to reverse the credit or repay the amount once the inputs are destroyed or rendered unusable, and failure to do so supports a finding of suppression of facts with intent to evade duty. The penalty challenge therefore failed and the penalty was upheld.

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Issues: Whether penalty was rightly imposed for availment and utilization of credit on inputs that later became unusable, in the absence of disclosure to the department and in the presence of suppression of facts with intent to evade duty.

Analysis: The dispute was confined to penalty, the demand itself having been accepted. The relevant rules provided for penalty where credit was taken or utilized wrongly by reason of fraud, wilful misstatement, collusion, suppression of facts, or contravention with intent to evade duty. The inputs had been credited and the credit utilized before the goods became unusable, but the fact of such utilization and the consequent obligation to reverse the credit was not disclosed to the department until investigation. Mere disclosure in the balance sheet did not amount to disclosure of the material fact that the credit had been taken and utilized. Once the inputs became unusable, the manufacturer was bound to reverse the credit or repay the amount, and failure to do so supported a finding of suppression and intent to evade.

Conclusion: Penalty was upheld and the challenge to the penalty failed.

Ratio Decidendi: Where modvat or cenvat credit on inputs becomes ineligible because the inputs are destroyed or rendered unusable, non-disclosure of the material fact and failure to reverse the credit constitutes suppression of facts with intent to evade duty, attracting penal consequences under the relevant excise credit provisions.

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