Wrongful Cenvat credit availment attracts penalty even after reversal, but absence of intent to evade can justify reduction.

Wrongful and premature availment of Cenvat credit can attract penalty even if the credit is later reversed with interest, because the rule contravention remains established. However, where suppression of facts with intent to evade duty is not shown, the penalty quantum may be interfered with and reduced. Penalty was therefore sustained in principle, but the amount was cut down to Rs. 1,50,000, and the order was modified to that limited extent.

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Issues: Whether penalty was leviable for wrongful and premature availment of Cenvat credit that was later reversed with interest, and whether the penalty imposed required reduction.

Analysis: The appellant had availed and utilized Cenvat credit prematurely over a period of several months. Even though the credit was subsequently reversed with interest, the contravention of the rules was established and penalty was therefore attracted. At the same time, the absence of suppression of facts with intent to evade duty, and the fact that the Revenue had not challenged the earlier modification of penalty, justified interference with the quantum of penalty.

Conclusion: Penalty was upheld in principle, but the amount was reduced to Rs. 1,50,000.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, and the impugned order stood sustained with modification.

Ratio Decidendi: Wrongful availment and utilisation of Cenvat credit can attract penalty notwithstanding subsequent reversal with interest, but the quantum may be reduced where suppression with intent to evade duty is not established.

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