CENVAT credit penalty confined to mere contravention where facts were disclosed and no intent to evade was shown

Penalty for wrongful availment of CENVAT credit on gas cylinders was held not to attract the stringent regime under Rule 13(2) read with Section 11AC because the credit had been taken openly and the material facts were disclosed to the Department. In the absence of suppression, fraud, wilful misstatement, collusion, or intent to evade duty, the matter fell only within Rule 13(1) for mere contravention. The penalty was therefore confined to the statutory maximum of Rs. 10,000, and the harsher equivalent penalty was set aside.

---

---

Issues: Whether the penalty could be sustained under Rule 13(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, or whether the facts attracted only Rule 13(1) and warranted a maximum penalty of Rs. 10,000/-.

Analysis: The credit had been availed openly on cylinders used for transporting gases, and the material facts were disclosed to the Department. There was no allegation or finding of suppression of facts, fraud, wilful misstatement, collusion, or intention to evade duty. On the facts, the case did not fall within the punitive regime of Rule 13(2) and Section 11AC. At the same time, the availment of credit on cylinders without proper entitlement amounted to a contravention of the CENVAT Credit Rules, bringing the matter within Rule 13(1), which prescribed a capped penalty.

Conclusion: Penalty under Rule 13(2) read with Section 11AC was not sustainable. The penalty was restricted to Rs. 10,000/- under Rule 13(1) of the Cenvat Credit Rules, 2004.

Final Conclusion: The demand on penalty was substantially reduced, and the appeal succeeded to the extent of setting aside the equivalent penalty while sustaining only the statutory maximum penalty.

Ratio Decidendi: In the absence of suppression, fraud, wilful misstatement, collusion, or intent to evade duty, penalty cannot be imposed under the stringent penalty provision and must be confined to the penalty provision applicable to mere contravention.

---