Reversal of inadmissible credit before notice supported waiver of penalty, while the duty demand remained undisturbed.

Inadmissible credit reversed before the show cause notice, and the duty demand was not challenged on merits; on that basis, penalty under Central Excise law was waived for reasonable cause. The Tribunal held that it was unnecessary to decide the extended period issue because doing so would indirectly disturb the undisturbed duty demand. The assessee's prompt reversal and limited challenge to limitation and penalty justified deletion of the penalty, while the duty demand remained intact.

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Issues: Whether the penalty imposed under the Central Excise law was liable to be set aside where the assessee had reversed the inadmissible credit before the show cause notice and had not contested the duty demand on merits.

Analysis: The assessee admitted that credit on aluminium sheets and MS chequered steel sheets was not admissible and reversed it before issuance of the show cause notice. The challenge was confined to limitation and penalty, while the duty demand itself was not assailed on merits. In these circumstances, the Tribunal held that it was unnecessary to return a finding on the extended period issue, since doing so would indirectly unsettle the duty demand. The conduct of the assessee and the prior reversal constituted sufficient basis to invoke the statutory power to waive penalty.

Conclusion: The penalty was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalty, while the duty demand remained undisturbed.

Ratio Decidendi: Where inadmissible credit is reversed before the show cause notice and the duty demand is not challenged on merits, penalty can be waived for reasonable cause.

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