Mandatory minimum penalty under Cenvat Credit Rules applies once wrongly taken credit is disallowed

Where Cenvat credit is found to have been wrongly taken on welding electrodes, Rule 13(1) of the Cenvat Credit Rules, 2001 operates mandatorily and requires confiscation and the prescribed minimum penalty. The fact that the dispute was contentious did not override the statutory language, and the Tribunal was bound to impose the minimum penalty once the credit claim was rejected for want of proof that the electrodes were used in fabrication of capital goods. The credit disallowance was affirmed and the statutory minimum penalty followed.

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Issues: Whether, after rejection of the assessee's claim for Modvat/Cenvat credit on welding electrodes, the Tribunal was bound to impose the minimum penalty prescribed under Rule 13(1) of the Cenvat Credit Rules, 2001.

Analysis: The credit claim was found to be untenable for want of evidence that the welding electrodes had been used for fabrication of capital goods, and the assessee's entitlement to credit was rejected. Once the case fell within Rule 13(1), the provision mandated confiscation and penalty, with a minimum penalty of ten thousand rupees or the duty amount, whichever was greater. The view that the matter was contentious could not displace the statutory command of the rule.

Conclusion: The minimum penalty under Rule 13(1) was required to be imposed; the assessee's challenge on this aspect failed and the penalty was directed to be paid.

Final Conclusion: The credit disallowance stood affirmed and the revenue's plea for penalty succeeded, resulting in imposition of the statutory minimum penalty.

Ratio Decidendi: Where Rule 13(1) applies upon a finding that Cenvat credit has been wrongly taken, the prescribed minimum penalty is mandatory and cannot be withheld merely because the dispute is contentious.

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