Pre-adjudication reversal of wrongly availed credit with interest can defeat penalty proceedings under the excise protective scheme.

Where wrongly availed credit or related duty amounts are reversed or paid with interest before adjudication after being pointed out, the protective scheme of Section 11A(2B) applies and penalty proceedings are not sustainable. The discussion notes that excess credit on capital goods, issues concerning non-amortisation of free-supplied material value, and credit on returned goods were rectified by reversal or payment with interest before adjudication. On that basis, continuation of the show-cause proceedings for penalty was held unwarranted, and the penal demand could not be sustained.

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Issues: Whether the penalty and related demand could be sustained when the assessee reversed the wrongly availed credit and paid the amounts with interest before adjudication.

Analysis: The assessee had, by oversight, availed excess credit on capital goods and also faced issues relating to non-amortisation of the value of free-supplied material and credit taken on returned goods. The record showed that the disputed amounts were reversed or paid along with interest after the discrepancy was pointed out. In these circumstances, the statutory protection under Section 11A(2B) was held applicable, and the issuance and continuation of the show-cause proceedings for penalty was found unwarranted. The earlier payments and reversals negatived the basis for sustaining the penal demand under the cited excise and credit provisions.

Conclusion: The penalty and the impugned order were set aside, and the appeal was allowed with consequential relief.

Ratio Decidendi: Where duty credit or related amounts are reversed or paid with interest before adjudication after being pointed out, penalty and further proceedings are not sustainable under the protective scheme of pre-show-cause notice payment.

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