Cenvat credit penalty cannot survive where reversal preceded notice and no suppression or intent to evade duty is proved.

Penalty was not sustainable where the disputed Cenvat credit had already been voluntarily reversed before the show cause notice and the Department failed to prove suppression, fraud, wilful misstatement or intent to evade duty. The record showed that the credit issue emerged from the appellant's own documents, returns had been regularly filed, and the non-payment was treated as inadvertent after a change in law rather than deliberate evasion. The longer limitation period was therefore unjustified. The already reversed amount was retained by way of appropriation, but the penalty was set aside.

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Issues: Whether penalty was sustainable on the confirmed Cenvat credit reversal amount where the amount had already been reversed much before issuance of the show cause notice, and whether the extended penal consequences could be invoked in the absence of suppression, fraud or intention to evade duty.

Analysis: The confirmed demand was limited to the amount already reversed by the appellant in 2011/2012, long before the show cause notice issued in 2015. The record showed that the disputed credit was detected from the appellant's own documents and that returns were regularly filed. On these facts, the non-payment was treated as a case of inadvertence or ignorance after the relevant change in law, not as a deliberate act to evade duty. The Department was required to establish a positive act of suppression, fraud or wilful misstatement, and no such material was found. The invocation of the longer period was also held to be unjustified in view of the proviso governing limitation.

Conclusion: Penalty was not sustainable and was set aside, while appropriation of the already reversed amount was maintained.

Final Conclusion: The appeal succeeded to the extent of relief from penalty, with the substantive reversal/appropriation left undisturbed.

Ratio Decidendi: Penalty cannot be imposed where the disputed amount was voluntarily reversed before notice and the Department fails to prove suppression, fraud, wilful misstatement or an intention to evade duty.

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