CENVAT penalty cannot survive after the underlying denial is set aside and no-penalty directions govern the matter.

Penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 could not be sustained where the basis for CENVAT credit denial had already been set aside. The Tribunal noted that in the assessee's connected matter, the Division Bench had remanded the case to the adjudicating authority and expressly directed that no penalty be imposed. On that footing, the earlier appellate order had merged and governed the dispute, so the Revenue's challenge to the reduced penalty could not survive and was rejected.

---

---

Issues: Whether penalty could be sustained under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 when the very basis of the CENVAT denial had already been set aside by the Tribunal.

Analysis: The Tribunal noted that in the assessee's own connected matter, the Division Bench had remanded the case to the adjudicating authority and had expressly observed that no penalty shall be imposed. In view of that prior order, the Tribunal held that the department's appeal against the reduced penalty could not survive, as the earlier appellate order had merged and governed the matter.

Conclusion: The penalty could not be sustained and the Revenue's appeal was rejected.

---