Interpretational CENVAT dispute led to penalty being set aside while demand and interest remained intact.

Under the CENVAT regime, penalty for shortfall in inputs was deleted because the dispute was interpretational and there was no finding of mala fide intent to evade duty. Although the demand and interest had already been upheld and were left undisturbed, the adjudication order had been passed before the jurisdictional High Court later settled the controversy. In line with the assessee's earlier matter, that subsequent clarification supported the view that penalty was not warranted for the period in question.

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Issues: Whether, in a case where the demand and interest were upheld, the penalty imposed for shortfall in inputs under the CENVAT regime was liable to be set aside on the ground that the dispute was interpretational and the adverse ruling came after the impugned order.

Analysis: The liability on merits had already been settled against the assessee, and the demand with interest was not disturbed. However, the adjudicatory order predated the jurisdictional High Court's ruling that finally settled the interpretational controversy. In that background, and following the view taken in the assessee's own earlier matter, the absence of a mala fide intention to evade duty was accepted for the period in question.

Conclusion: The penalty was held to be unwarranted and was set aside, while the demand and interest were left undisturbed.

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