Bona fide reversal of wrongly availed credit before notice defeats penalty and extended limitation, while demand survives.

Penalty for wrongly availed Cenvat credit was held unsustainable where the assessee paid the credit and interest before receipt of the show-cause notice and the record showed a bona fide mistake rather than deliberate evasion. On those facts, invocation of the extended period was also not justified. The substantive demand for the credit and interest remained undisturbed, but the penalty was deleted, limiting relief to that extent.

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Issues: Whether penalty was sustainable where the wrongly availed credit and interest were paid before receipt of the show-cause notice, and whether the extended period could be invoked on facts showing a bona fide mistake.

Analysis: The audit had detected the credit availment, but the payment of the Cenvat credit and interest was made before receipt of the show-cause notice. The chronology showed that the notice was dated earlier but was signed later, supporting the claim that payment preceded service of notice. The record also did not support a finding of deliberate evasion. The facts indicated a mistake in availing credit, followed by voluntary payment, including the balance interest when the shortfall was noticed. In these circumstances, the basis for invoking the extended period and imposing penalty was not made out.

Conclusion: Penalty was not sustainable and was set aside. The demand for the wrongly availed credit with interest was left undisturbed.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalty, while the substantive demand and interest liability remained upheld.

Ratio Decidendi: Where wrongly availed credit and interest are paid before receipt of the show-cause notice and the lapse is shown to be bona fide rather than deliberate, penalty and extended limitation are not justified.

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