Voluntary duty payment and supported CENVAT credit records defeated penalty and irregular credit findings in a CESTAT matter.

Voluntary payment of duty with interest before issuance of the show cause notice was treated as sufficient to defeat the demand-related penalty on cylinder charges, because the omission had been rectified before adjudication. On CENVAT credit, the assessee's contemporaneous records, intimation of crossing the exemption limit, and departmental verification supported its claim that credit was taken on existing input stock; the finding of irregular credit and the consequential penalty were therefore not sustainable. The impugned order was set aside and consequential relief followed.

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Issues: (i) Whether penalty and duty liability could be sustained in respect of cylinder charges when the assessee had paid the duty with interest before issuance of the show cause notice. (ii) Whether the denial of CENVAT credit and the consequential penalty were justified when the assessee claimed that the credit was taken on inputs used after crossing the exemption limit and supporting records were produced.

Issue (i): Whether penalty and duty liability could be sustained in respect of cylinder charges when the assessee had paid the duty with interest before issuance of the show cause notice.

Analysis: The assessee was a small scale unit for only a limited part of the relevant period and had already discharged the duty along with interest on the cylinder charges before the show cause notice was issued. The record showed that the omission was rectified voluntarily and the payment was not made after adjudication of the demand.

Conclusion: The demand-related penalty on cylinder charges was not sustainable.

Issue (ii): Whether the denial of CENVAT credit and the consequential penalty were justified when the assessee claimed that the credit was taken on inputs used after crossing the exemption limit and supporting records were produced.

Analysis: The assessee had placed material on record showing intimation to the excise authorities about crossing the exemption limit and the availing of credit on existing input stocks. The departmental visit and verification were also referred to, and the finding of irregular credit was found to be contradictory to the record. In addition, the assessee maintained records and had supplied documentary evidence to answer the objections raised by the department.

Conclusion: The finding of irregular CENVAT credit and the consequential penalty were not sustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where duty is voluntarily paid with interest before the show cause notice and the assessee substantiates CENVAT credit entitlement with contemporaneous records and departmental verification, penalty and adverse findings on irregular credit cannot be sustained.

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