Bona fide Cenvat credit dispute defeats penalty where credit was disclosed in returns and records, with no suppression shown.

Penalty under Rule 13(2) of the Cenvat Credit Rules, 2002 read with section 11AC of the Central Excise Act was held unsustainable where the disputed credit was fully disclosed in statutory records and ER-1 returns. The dispute concerned a bona fide interpretation of the Modvat/Cenvat scheme, with no suppression, misstatement, or mala fide intent established. The earlier final appellate view for the preceding period, which had also set aside penalty on the same reasoning, supported the same result. In these circumstances, openly availed credit and a genuine interpretational controversy negatived the basis for penal action.

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Issues: Whether penalty was imposable under Rule 13(2) of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 when the Modvat credit dispute arose from a bona fide interpretation of the rules and the credit had been reflected in statutory records and ER-1 returns.

Analysis: The credit availed on the disputed items was disclosed in the ER-1 returns and statutory records, showing no suppression or misstatement with mala fide intent. The dispute was one of legal interpretation of the Modvat/Cenvat scheme. The earlier appellate order for the prior period, which had set aside penalty on the same reasoning and had attained finality since it was not challenged by the Revenue, supported the view that penalty was not justified. In such circumstances, the existence of a bona fide interpretational dispute negatived the basis for penal action.

Conclusion: Penalty was not imposable on the assessee.

Ratio Decidendi: Where credit is availed openly in statutory returns and the dispute is confined to interpretation of the credit rules, penalty cannot be sustained in the absence of suppression, misstatement, or mala fide intent.

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