Wrongful CENVAT credit availment justified penalty, but the quantum was reduced after considering surrounding circumstances.

Wrongful availment of CENVAT credit in respect of exempted clearances justified imposition of penalty because the irregular credit was not permitted under the applicable regime, even though liability had been discharged later. The penalty was sustained in principle, but the quantum was found excessive on the facts and was reduced in light of the surrounding circumstances and the amount already paid. Partial relief was therefore granted by moderating the penalty while preserving the penal consequence for unauthorised credit availment.

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Issues: Whether penalty imposed under Rule 13 of the CENVAT Credit Rules, 2002 was warranted, and if so, whether it should be reduced.

Analysis: The appellant had availed credit in a manner that was not permissible under the applicable CENVAT regime governing exempted clearances. The dispute arose from the manner in which liability was worked out for the relevant period, and the recorded discharge of liability did not eliminate the fact of irregular availment. In these circumstances, penalty was found to be justified, though the extent of penalty was considered excessive in light of the overall facts and the liability already discharged.

Conclusion: The penalty was upheld in principle, but reduced from Rs. 2,38,132/- to Rs. 1,00,000/-, resulting in partial relief to the assessee.

Final Conclusion: The order sustained penal consequences for wrongful resort to an unavailable option under the CENVAT framework, while granting limited relief by reducing the quantum of penalty.

Ratio Decidendi: Where credit is wrongly availed under the CENVAT scheme, penalty may be sustained, but the quantum can be moderated having regard to the surrounding circumstances and the extent of liability already discharged.

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