CENVAT credit penalty and confiscation require proof of intent to evade duty; mere record lapses are insufficient.

Equal penalty for wrong CENVAT credit was not justified where the credit taken on duty-paid supplies from an EOU was later reversed with interest, the invoices disclosed duty payment, and there was no material of wilful suppression or intent to evade duty; the reduced penalty was therefore sustained. Confiscation of finished goods and related penalties were also unsustainable because the goods were packed for dispatch, reflected in private records, matched the raw material account, and were awaiting quality control clearance, so mere non-entry in statutory books did not prove clandestine removal or warrant mechanical application of Rule 25; those penalties were set aside.

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Issues: (i) Whether equal penalty was warranted under Rule 15(2) of the Cenvat Credit Rules, 2004 for wrong availment of CENVAT credit; (ii) Whether confiscation of finished goods found unrecorded in the statutory books and the consequential penalties were sustainable.

Issue (i): Whether equal penalty was warranted under Rule 15(2) of the Cenvat Credit Rules, 2004 for wrong availment of CENVAT credit.

Analysis: The credit had been taken on duty paid by an EOU without applying the prescribed formula under Rule 3 of the Cenvat Credit Rules, 2004. However, the credit was reversed with interest when the error was pointed out. The invoices themselves reflected duty payment, and the record did not establish willful suppression or misstatement with intent to evade duty.

Conclusion: Equal penalty was not warranted and the reduced penalty sustained by the first appellate authority was upheld.

Issue (ii): Whether confiscation of finished goods found unrecorded in the statutory books and the consequential penalties were sustainable.

Analysis: The goods were found packed and ready for dispatch, and the partner's statement showed that dispatch was awaited only for quality control clearance from customers. The raw material account tallied, the goods were reflected in private records, and there was no evidence of clandestine removal or intention to evade duty. In such circumstances, Rule 25 could not be applied mechanically to treat the goods as liable to confiscation.

Conclusion: Confiscation and the consequential penalties were not sustainable and were set aside.

Final Conclusion: The challenge to penalty enhancement failed, while the confiscation and connected penalties were quashed, resulting in relief to the assessee on the substantive dispute.

Ratio Decidendi: Confiscation and penal consequences for unrecorded goods require material showing intention to evade duty or clandestine removal; mere non-entry in statutory records, without such proof and where the goods are held for quality control clearance, is insufficient.

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