Penalty under CENVAT credit law fails absent suppression or wilful misstatement; duty and interest remain intact.

Penalty under the CENVAT credit regime could not be sustained where the solvents had deteriorated, were unfit for manufacture, and were cleared as spent solvents after payment of duty and interest. The record did not establish suppression of facts or wilful misstatement, so the ingredients for penal action were absent. The penalty was therefore set aside, while the duty demand and interest remained undisturbed, resulting in partial relief to the assessee.

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Issues: Whether penalty was sustainable when the solvents were found to be unfit for manufacture and were cleared as spent solvents after payment of duty and interest, and whether the ingredients for penal action were established.

Analysis: The dispute centred only on the penalty, as the duty and interest were not contested. The materials were found to have deteriorated and become unusable for manufacture, and there was no evidence to show that the solvents cleared as spent solvents were fit for use in the appellant's manufacturing process. The record did not establish suppression of facts or wilful misstatement. In these circumstances, the basis for invoking penal consequences was absent.

Conclusion: The penalty was set aside and the appeal was allowed to that extent, with the duty demand and interest left undisturbed.

Final Conclusion: Penal liability was not made out on the facts, but the confirmation of duty and interest remained intact, resulting in partial relief to the assessee.

Ratio Decidendi: Penalty under the CENVAT credit regime cannot be sustained in the absence of evidence of suppression or wilful misstatement where the goods are shown to have become unfit for use and the duty and interest have already been paid.

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