Cenvat credit calculation dispute: equal penalty is not warranted where credit was computed by the prescribed formula without suppression.

Equal penalty was not justified where Cenvat credit on inputs from a 100% EOU was computed by applying the prescribed formula under Rule 3(7)(a) of the Cenvat Credit Rules and the dispute was confined to the correctness of the calculation. The matter turned on interpretation of the rule, not on any taking of full credit contrary to the formula. In the absence of suppression or mala fide, and where the record showed the department had accepted absence of suppression for another period, penalty under Rule 15(2) read with section 11AC was not warranted. The penalty order was therefore set aside.

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Issues: Whether equal penalty was sustainable where the appellant had computed Cenvat credit on inputs received from a 100% EOU by applying the prescribed formula, and the dispute was only about the correctness of the method of calculation.

Analysis: The appellant had not taken credit of the entire duty paid by the 100% EOU without applying the prescribed formula; instead, credit was worked out by application of the formula under Rule 3(7)(a) of the Cenvat Credit Rules. The dispute was confined to the manner of calculation and, therefore, turned on interpretation of the rule. In such a situation, imposition of equal penalty under Rule 15(2) of the Cenvat Credit Rules read with section 11AC of the Central Excise Act was not justified, particularly when the record did not show suppression and the department itself had accepted absence of suppression for another period.

Conclusion: Penalty was not leviable; the order sustaining penalty of Rs. 44,388/- was set aside in favour of the appellant.

Ratio Decidendi: Where Cenvat credit is taken by applying a prescribed formula and the dispute is only over interpretation or calculation of the rule, penalty under the Cenvat credit penalty provisions is not warranted in the absence of mala fide or suppression.

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