Penalty for excise credit irregularity set aside where no live duty demand remained and records were available for verification.

Credit taken on original excise invoice copies, instead of the duplicate copies required under the then-applicable credit mechanism, was treated as an irregularity capable of attracting recovery under Rule 57-I. However, the Tribunal held that penalty under Rules 173Q and 209 was not justified where no live duty demand remained and the department had access to the relevant registers and returns in the ordinary course, giving it sufficient opportunity to detect and correct the defect. On those facts, the penal action was unsustainable and was set aside in favour of the assessee.

---

---

Issues: Whether penalty under the Central Excise Rules was justified against a registered dealer for taking credit on original invoice copies instead of duplicate copies, and whether the absence of a duty demand or extended-period confirmation affected the sustainability of the penalty.

Analysis: The credit mechanism then in force required credit to be taken on duplicate invoices, and recovery of wrong credit was contemplated under Rule 57-I. The dealer, though not treated as a manufacturer for all purposes under the rules, had taken credit on incorrect invoice documents, which supported the allegation of a deliberate irregularity. However, the Tribunal found that the penal provisions under Rules 173Q and 209 were linked to the nature of the default and the departmental inaction was relevant, since the registers and returns were available for verification in the ordinary course. In the absence of any live duty demand and considering that the department had sufficient opportunity to detect and correct the irregularity, the Tribunal held that the circumstances did not justify penal action.

Conclusion: The penalty on the dealer was not sustainable and was set aside in favour of the assessee.

---