Export notification breach sustained despite later credit reversal; penalty upheld in principle but reduced on the facts.

Contravention of export notification conditions was sustained because the assessee availed the export incentive while also taking Modvat credit on inputs used in the exported goods; later reversal of the credit did not erase the breach. The adjudicating forum accepted that the violation remained, but found the facts sufficient to interfere with the quantum of penalty. The penalty was therefore upheld in principle and reduced to Rs. 5,000, with the appeal partly allowed.

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Issues: Whether, on the facts of the case, penalty imposed for availing export incentive benefit without complying with the notification conditions could be sustained in full or deserved reduction.

Analysis: The appellant had availed the benefit of the export notification while simultaneously taking Modvat credit on inputs used in exported goods and later reversed the credit by debiting the PLA. The Court noted that the conditions of the notification were not complied with and that the resulting contravention could not be erased merely because the credit was later reversed. At the same time, the circumstances of the case justified interference with the quantum of penalty.

Conclusion: The penalty was held to be sustainable, but it was reduced to Rs. 5,000 under Rule 173Q(1) of the Central Excise Rules, 1944, and the appeal was partly allowed in favour of the assessee.

Final Conclusion: The order was modified only to the extent of penalty reduction, while the finding of contravention was maintained.

Ratio Decidendi: Where the conditions of an exemption or export incentive notification are violated, subsequent reversal of credit does not obliterate the contravention, though the penalty may be reduced on the facts of the case.

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