Specific quantification required for credit disallowance; penalty cannot be enhanced in remand beyond the earlier unchallenged order

A full disallowance of input credit was not sustainable where the show cause notice and corrigendum did not clearly quantify the alleged irregularity invoice-wise or entry-wise, and the record did not establish that the entire credit was taken without receipt of inputs or on a complete factual foundation. Only the admitted inadmissible credit remained disallowable. Penalty also could not be enhanced in remand proceedings beyond the penalty fixed in the earlier adjudication that had not been challenged, so a reduced penalty was considered appropriate and was brought down to Rs. 1,00,000.

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Issues: (i) whether the demand of credit could be sustained in full when the show cause notice did not clearly quantify the irregularity invoice-wise and entry-wise; (ii) whether penalty could be enhanced in remand proceedings beyond the penalty imposed in the earlier adjudication.

Issue (i): whether the demand of credit could be sustained in full when the show cause notice did not clearly quantify the irregularity invoice-wise and entry-wise.

Analysis: The notice and its corrigendum did not clearly and consistently spell out the basis of the proposed disallowance. The record did not contain evidence that the entire credit was taken without receipt of inputs, nor was there material showing stock shortage or a complete factual foundation to disallow the full amount. In the absence of clear and specific allegations, the appellant could not be expected to meet the case against it. Only the admitted inadmissible credit stood established.

Conclusion: The full disallowance was not sustainable; only credit of Rs. 2,47,844/- was held inadmissible and the rest of the credit demand was not upheld.

Issue (ii): whether penalty could be enhanced in remand proceedings beyond the penalty imposed in the earlier adjudication.

Analysis: The earlier adjudication had imposed a penalty of Rs. 2.5 lakh, and the Revenue had not challenged that order. In the remand proceedings, enhancement of penalty was not justified. The circumstances warranted moderation of penalty, and a reduced penalty was considered sufficient to serve the ends of justice.

Conclusion: The penalty could not be enhanced in remand proceedings; it was reduced to Rs. 1,00,000/- under Rule 173Q(1)(bb) of the Central Excise Rules, 1944.

Final Conclusion: The assessee obtained substantial relief on the credit demand and penalty, while the Revenue's challenge failed.

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