Penalty for excess CENVAT credit was rejected where the recipient reversed credit with interest and no intent to evade was found.

Penalty for excess CENVAT credit taken on the basis of an ISD invoice was held not imposable where the recipient unit reversed the credit with interest after the error was pointed out. The excess arose from incorrect distribution of common input service credit by the Input Service Distributor, and the recipient was not expected to independently verify the turnover-based allocation of all units. In the absence of fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty, penalty under Rule 15(2) read with Section 11AC could not be sustained.

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Issues: Whether penalty was sustainable on the recipient unit for availing excess CENVAT credit on the basis of an ISD invoice, when the excess credit was reversed with interest on being pointed out.

Analysis: The excess credit arose because the Input Service Distributor in Kolkata distributed common input service credit otherwise than on a turnover-based pro rata basis. The recipient unit could not reasonably be expected to verify the turnover of all units or independently compute the admissible distribution, and the wrongful distribution was attributable to the ISD. The credit and interest were reversed when the audit pointed out the mistake. The record did not show fraud, collusion, wilful misstatement, suppression of facts, or any intent to evade duty by the appellant.

Conclusion: Penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was not imposable on the appellant.

Ratio Decidendi: Where excess CENVAT credit is taken by a recipient unit on the basis of an ISD invoice and is reversed with interest without any finding of fraud, suppression, or intent to evade duty, penalty under Section 11AC cannot be imposed on the recipient unit.

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