Cenvat credit penalty fails without suppression or intent to evade duty; smaller penalty was nevertheless upheld.

Equivalent penalty under Rule 25(2) of the Cenvat Credit Rules, read with Section 11AC of the Central Excise Act, was held unsustainable because the disputed credit was reflected in ER-I returns and the inputs were shown as duty-paid materials delivered at the customers' site, so suppression of facts with intent to evade duty was not established. The framework also permitted delivery of duty-paid inputs at a job worker's premises or at site during the relevant period, which weakened the basis for the equivalent penalty. The smaller penalty of Rs. 6,114 was not found infirm and was maintained.

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Issues: (i) Whether the equivalent penalty imposed under Rule 25(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was sustainable; (ii) whether the penalty of Rs. 6,114/- was liable to be set aside.

Issue (i): Whether the equivalent penalty imposed under Rule 25(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was sustainable.

Analysis: The disputed credit was reflected in the ER-I returns and the materials were shown as duty-paid inputs delivered at the customers' site. On that basis, the necessary element of suppression of facts with intent to evade duty was not established. The applicable Cenvat credit framework also permitted delivery of duty-paid inputs at a job worker's premises or at site in the relevant period, weakening the basis for equivalent penalty.

Conclusion: The equivalent penalty was unsustainable and was set aside in favour of the appellant.

Issue (ii): Whether the penalty of Rs. 6,114/- was liable to be set aside.

Analysis: The record did not disclose any infirmity in the levy of the smaller penalty, and no ground was found to interfere with that part of the order.

Conclusion: The penalty of Rs. 6,114/- was rightly imposed and was upheld against the appellant.

Final Conclusion: The decision granted relief only against the equivalent penalty while leaving the smaller penalty intact, resulting in a partial success for the appellant.

Ratio Decidendi: Equivalent penalty under the Cenvat credit regime requires establishment of the statutory ingredients of suppression and intent to evade duty; where credit is disclosed in returns and the factual basis does not support those ingredients, such penalty cannot stand.

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