Bona fide reversal of irregular Cenvat credit before notice defeats penalty where no mala fide intent or undue benefit is shown.

Penalty for irregular Cenvat credit was held unwarranted where the assessee reversed the credit before the show cause notice and the record showed bona fide error rather than mala fide intent. The Tribunal treated the mistaken credit on another unit's invoice as a clerical duplication, and the credit taken on the bill of entry before receipt of goods as only a timing issue that did not confer any undue benefit. While the duty confirmation remained undisturbed, the penal consequences were deleted because the irregularities were not found to be intentional or gain-based.

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Issues: Whether penalty was sustainable for irregular availment of Cenvat credit when the credit was reversed before issuance of the show cause notice and the availment was claimed to be without mala fide intention.

Analysis: The credit irregularly taken had been reversed by the appellant before the show cause notice. The Tribunal treated this reversal as a material factor showing that the proceedings ought not to have been pursued further in the circumstances. It also found that the credit taken on an invoice meant for another unit was otherwise available to that unit, that the duplicate credit entry was a clerical error, and that the credit taken on the bill of entry before receipt of goods was only a question of timing and had not resulted in any undue benefit.

Conclusion: Penalty was not justified and was set aside.

Final Conclusion: The duty confirmation was left undisturbed, but the penal consequences were deleted on the finding that the credit irregularities were bona fide and not actuated by mala fide intent.

Ratio Decidendi: Where irregular credit is reversed before the show cause notice and the facts show bona fide mistake without mala fide intention or gain, penalty provisions are not attracted.

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