Job-work credit taken too early breached excise procedure, making penalty lawful but substantially reduced.

Taking credit on inputs sent to a job worker before receipt of the finished or intermediate goods was treated as a breach of the prescribed procedure under Rule 57J and as taking credit without reasonable steps under Rule 173Q(1)(bb) of the Central Excise Rules, 1944. Penalty was therefore leviable, but the limited and temporary nature of the credit advantage, together with return of the goods within the prescribed period, justified substantial reduction of the penalty from the original amount to a nominal sum.

---

---

Issues: Whether penalty under Rule 173Q(1)(bb) of the Central Excise Rules, 1944 was leviable for taking credit on inputs before receipt of the job-worker's finished or intermediate goods, and if so, whether the quantum of penalty required reduction.

Analysis: Credit on inputs sent directly to job workers could, on the facts found, be taken only after receipt of the intermediate or finished goods in terms of the departmental procedure and Rule 57J of the Central Excise Rules, 1944. Taking credit earlier was a violation of the prescribed procedure and amounted to taking credit without taking reasonable steps within the meaning of Rule 173Q(1)(bb). At the same time, the records showed that the goods were returned within the prescribed period and the appellant had only obtained a temporary credit advantage for a limited period.

Conclusion: Penalty was held to be imposable under Rule 173Q(1)(bb), but the penalty was reduced from Rs. 2,00,000 to Rs. 10,000.

---