Penalty under Cenvat credit law not imposed where duty was sustained but taxability remained debatable and fraud was unproved.

Penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act was held unwarranted despite confirmation of duty liability, because the underlying taxability issue was debatable and differing views existed. In the absence of any finding of wilful fraud by the assessee, the mandatory character of the penalty provision was not applied rigidly, and the Tribunal's refusal to impose penalty was upheld.

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Issues: Whether penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 could be waived despite confirmation of duty liability.

Analysis: The duty demand had been sustained, but the controversy on taxability was not free from doubt, with differing views having been noted on the underlying issue. No establishment of wilful fraud on the part of the assessee was found. In these circumstances, the question was whether the penalty provision, though stated to be mandatory, should still be insisted upon.

Conclusion: The penalty was not warranted and the Tribunal's refusal to impose it was upheld.

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