Section 11AC penalty fails where CENVAT credit is reversed with interest before notice and suppression is not proved.

Penalty under Section 11AC of the Central Excise Act was held unsustainable because the wrongly availed CENVAT credit had been reversed with interest before the show-cause notice, the first item was revenue neutral, and the remaining discrepancies were treated as mistakes or arithmetical errors. Suppression or wilful misstatement was not established, and there was no clear finding that the assessee concealed the credit in returns or records. On that basis, the allegation of suppression failed and the penalty was set aside in favour of the assessee.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the wrongly availed CENVAT credit had been reversed with interest before issuance of the show-cause notice and the allegation of suppression was not made out.

Analysis: The credits were paid back with interest before the notice, and the first item was found to be revenue neutral. The remaining errors were treated as mistakes or arithmetical errors. For invoking penalty under Section 11AC, suppression or wilful misstatement had to be established. The record did not show any legal requirement to intimate every document on the basis of which credit was taken, and there was no clear finding that the assessee had concealed the availment of credit in its returns or records. In these circumstances, the allegation of suppression was not sustainable.

Conclusion: Penalty under Section 11AC was not sustainable and was set aside, in favour of the assessee.

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