Penalty for inadmissible CENVAT credit cannot be imposed on a non-recipient, and intentional conduct must be established for higher penalty.

Penalty under Rule 13 of the CENVAT Credit Rules, 2002 was held sustainable only against the person who actually took the inadmissible credit, so the penalty on the individual was set aside because the company had taken the credit. The higher penalty under Rule 13(2) could not be imposed where the notice proceeded on wrongful availment but did not establish the required intentional conduct, so that penalty was also disallowed. On the facts, the company had already reversed the credit and forfeited the related export refund, which justified leniency, and its penalty was reduced to Rs. 50,000.

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Issues: (i) whether penalty under Rule 13 of the CENVAT Credit Rules, 2002 was sustainable against an individual who had not taken the credit; (ii) whether penalty for wrongful availment of credit could be imposed under Rule 13(2) where the notice alleged both intentional and wrongful availment; (iii) whether the penalty imposed on the assessee company required reduction on the facts.

Issue (i): whether penalty under Rule 13 of the CENVAT Credit Rules, 2002 was sustainable against an individual who had not taken the credit.

Analysis: Penalty under Rule 13 is attracted against the person who actually takes the credit. The credit in question had been taken by the company and not by the individual against whom penalty had been imposed.

Conclusion: The penalty on the individual was not sustainable and was set aside.

Issue (ii): whether penalty for wrongful availment of credit could be imposed under Rule 13(2) where the notice alleged both intentional and wrongful availment.

Analysis: The expressions "intentionally" and "wrongly" were treated as inconsistent in the context of the notice. Once the department itself proceeded on the footing that the credit was wrongly taken, the element of intention required for the higher penalty was not established.

Conclusion: Penalty under Rule 13(2) was held not imposable.

Issue (iii): whether the penalty imposed on the assessee company required reduction on the facts.

Analysis: The assessee had already reversed the credit and had lost the refund otherwise admissible on exported goods. The facts justified a lenient approach in quantifying penalty.

Conclusion: The penalty on the assessee company was reduced to Rs. 50,000.

Final Conclusion: The individual penalty was annulled and the company's penalty was substantially reduced, resulting in partial relief to the assessee side.

Ratio Decidendi: Penalty under Rule 13 of the CENVAT Credit Rules, 2002 lies against the person who actually takes inadmissible credit, and the higher penal consequence requiring intentional conduct cannot be invoked where the allegation and findings establish only wrongful availment.

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