Interpretational Cenvat credit dispute: penalty not sustainable where credit was reversed with interest and no wilful evasion was shown.

Penalty under Section 11AC was not attracted where disputed Cenvat credit was taken during setting up of a new unit and the dispute turned on whether goods used for supporting structures and installation work qualified as capital goods or inputs. The controversy was interpretational rather than indicative of deliberate evasion, and the credit was reversed with interest after the issue was pointed out. In the absence of suppression or wilful intent to evade duty, the penalty was set aside.

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Issues: Whether penalty under Section 11AC was sustainable when the disputed cenvat credit was taken in the course of setting up a new unit, the controversy was one of interpretation, and the credit was reversed with interest after being pointed out.

Analysis: The dispute concerned availability of credit on items used in the factory, including items falling under Chapter 73 and used for supporting structures and installation work. The denial of credit turned on whether such goods qualified as capital goods or inputs, making the issue interpretational rather than one involving deliberate evasion. The credit was reversed and interest was paid after the point was raised, and the record did not disclose suppression or wilful intent to evade duty.

Conclusion: Penalty under Section 11AC was not attracted and the penalty was set aside.

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