Section 11D demand and Cenvat credit penalty fail where duty was already paid and reversal was made in bona fide belief.

Section 11D does not apply where duty amounts recovered from buyers have already been deposited with the Revenue, because the statutory mischief arises only when such sums are collected as duty and retained by the manufacturer; the demand was therefore unsustainable. Penalty for non-reversal of Cenvat credit on exempted clearances was also not justified where the attributable credit had been reversed with interest and the assessee acted under a bona fide belief supported by the prevailing legal position, with no mala fide intention; the penalty was therefore set aside. The impugned orders were consequently withdrawn with consequential relief.

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Issues: (i) Whether the demand under Section 11D was sustainable where the assessee had recovered amounts from buyers but had already paid those amounts to the Revenue. (ii) Whether penalty was imposable for non-reversal of Cenvat Credit on exempted clearances, when the credit attributable to the exempted goods had been reversed with interest and the assessee acted under a bona fide belief.

Issue (i): Whether the demand under Section 11D was sustainable where the assessee had recovered amounts from buyers but had already paid those amounts to the Revenue.

Analysis: The amounts recovered from buyers towards duty were already deposited with the Department. Section 11D applies to amounts collected as duty and retained by the manufacturer. Where no such amount remains unpaid to the Revenue, the statutory mischief does not arise. The reasoning was consistent with the Larger Bench view in Unison Metals and the CBEC clarification that payment of the prescribed percentage under the erstwhile credit-reversal scheme takes the case outside Section 11D.

Conclusion: The demand under Section 11D was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty was imposable for non-reversal of Cenvat Credit on exempted clearances, when the credit attributable to the exempted goods had been reversed with interest and the assessee acted under a bona fide belief.

Analysis: The credit attributable to the exempted goods had been reversed along with interest. The assessee's conduct was supported by the then-prevailing legal position and the earlier decision recognizing entitlement to credit, and the Tribunal found absence of mala fide intention. In such circumstances, penal consequences were not justified.

Conclusion: Penalty was not imposable and was set aside in favour of the assessee.

Final Conclusion: The demand and penalty were unsustainable, and the impugned orders were set aside with consequential relief.

Ratio Decidendi: Section 11D does not apply where the amount collected from buyers as duty has already been deposited with the Revenue, and penalty is not warranted where the assessee acts under a bona fide belief without mala fide intention.

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