Pre-show-cause reversal of CENVAT credit with interest defeats penalty where audited records negate suppression

Reversal of CENVAT credit with interest before issuance of the show-cause notice attracted Section 11A(2B) of the Central Excise Act, so the demand should not have been pursued by notice. Audit of the records during the relevant period also negatived any allegation of suppression of facts with intent to evade duty. On that footing, penalty under Rule 15(2) read with Section 11AC was held unsustainable and was set aside.

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Issues: Whether penalty imposed under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944 was sustainable when the assessee had reversed the CENVAT credit with interest before issuance of the show-cause notice and the records had been audited.

Analysis: The assessee had discharged the duty liability along with interest before the show-cause notice was issued after the matter was pointed out by the department. On those facts, Section 11A(2B) of the Central Excise Act, 1944 was attracted, and the demand ought not to have been pursued by notice. The records had also been audited during the relevant period, which negatived an allegation of suppression of facts with intent to evade duty. In these circumstances, the first appellate authority correctly held that the penalty was not warranted.

Conclusion: The penalty was rightly set aside and the Revenue's appeal failed.

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