Penalty for wrong CENVAT credit can survive later reversal, but mitigating facts may justify substantial reduction.
Wrong availment of CENVAT credit remained penal in nature where the governing excise rule did not distinguish between deliberate misconduct and bona fide mistake, and later reversal of the related depreciation claim did not erase the original infraction. The earlier decisions cited were treated as inapplicable, so liability to penalty was sustained. However, the assessee's size, the duty position, the absence of intent, and prompt corrective steps after detection were treated as mitigating factors. On that basis, the penalty was moderated as excessive and reduced to a nominal amount.
Issues: (i) Whether penalty was leviable for wrong availment of CENVAT credit merely because the assessee had also claimed depreciation and later reversed it; (ii) Whether the penalty required reduction in the facts and circumstances of the case.
Issue (i): Whether penalty was leviable for wrong availment of CENVAT credit merely because the assessee had also claimed depreciation and later reversed it.
Analysis: Rule 173QA(bb) of the Central Excise Rules, 1944 was treated as not making a distinction between deliberate wrongdoing and bona fide mistake. The earlier decisions cited for the assessee were found inapplicable because one did not address penalty and the other turned on different facts. The existence of subsequent reversal of depreciation did not erase the wrong availment, and the rule was held to permit penalty for such wrongful credit.
Conclusion: Penalty was held to be imposable.
Issue (ii): Whether the penalty required reduction in the facts and circumstances of the case.
Analysis: The assessee's size, the duty paid, the absence of intention to take wrong credit, and the prompt remedial steps after detection were treated as relevant mitigating circumstances. On that basis, the original penalty was considered excessive and a nominal penalty was found sufficient.
Conclusion: The penalty was reduced from Rs. 5,00,000 to Rs. 10,000.
Final Conclusion: The finding of liability to penalty was sustained, but the penalty was substantially curtailed on equitable and factual grounds.
Ratio Decidendi: Where a taxing rule imposes penalty for wrong availment of credit without carving out an exception for bona fide error, penalty remains leviable despite later remedial reversal, though the amount may be moderated on mitigating facts.