Fraudulent CENVAT credit reversal does not attract Section 11A(2B) protection where records were manipulated and goods were not received.

Section 11A(2B) of the Central Excise Act applies only where short payment or non-payment is untainted by fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty. Where credit was taken without receipt of goods, false Gate Register entries were made, and goods were sent directly to the customer, the availment was knowingly and deliberately wrongful. Later reversal of the CENVAT credit did not cure the original fraud or bring the case within the statutory protection. Interest and penalty therefore remain sustainable in such circumstances.

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Issues: Whether reversal of wrongly availed CENVAT credit before issuance of show-cause notice excludes interest and penalty where the availment was accompanied by manipulation of records and other indicia of fraud, so as to attract Section 11A(2B) of the Central Excise Act, 1944.

Analysis: Section 11A(2B) applies only where duty has been short-paid or not paid without the taint of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. The respondent had taken credit without receipt of goods in its factory, made false entries in the Gate Register, and sent the goods directly to the customer, showing that the credit was knowingly and deliberately availed despite ineligibility. On these facts, the later reversal of credit did not erase the original wrongful availment or its fraudulent character. The cited authorities dealing with different factual or legal settings did not displace the directly applicable principle that fraud takes the case outside the protective ambit of Section 11A(2B).

Conclusion: Section 11A(2B) was inapplicable, and interest as well as penalty were sustainable against the assessee.

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