Bona fide Cenvat re-credit during unsettled legal controversy justified deletion of penalty after duty and interest were paid.

Penalty for re-credit of Cenvat credit on furnace oil used as fuel was held unsustainable where the assessee acted in line with then-prevailing High Court and Tribunal views, disclosed its credit position to the Department, and later paid the confirmed duty and interest. The re-availment was treated as a bona fide adjustment made during a period of conflicting judicial authority, not as deliberate evasion or mala fide conduct. Applying the principle that penalty is not warranted when the controversy was unsettled and was later resolved by the Supreme Court, the Cenvat penalty was set aside.

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Issues: Whether the penalty imposed for taking re-credit of Cenvat credit on furnace oil used as fuel was sustainable when the assessee had acted in accordance with prevailing judicial precedents and had subsequently paid the confirmed duty and interest.

Analysis: The dispute concerned reversal and re-credit of Cenvat credit on furnace oil used as fuel in the manufacture of dutiable and exempted goods. The assessee had informed the Department about its credit position and later re-availed credit in line with then-prevailing High Court and Tribunal views. The issue of admissibility of credit on fuel inputs was later settled by the Supreme Court, and the assessee paid the confirmed demand and interest. In these circumstances, the re-taking of credit was treated as a bona fide adjustment made against a background of conflicting judicial decisions, and not as a case of deliberate evasion or mala fide conduct. Following the principle that penalty is not warranted where the controversy was unsettled and was finally resolved by the Supreme Court, the penalty was held to be unsustainable.

Conclusion: The penalty imposed under the Cenvat Credit Rules was not sustainable and was set aside in favour of the assessee.

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