Modvat credit penalty not sustainable where credit was unused, promptly reversed, and no intent to evade duty was shown.

Penalty for irregular availment of Modvat credit on capital goods before installation was held unwarranted where the credit was not utilised for payment of duty, no revenue loss was shown, and the entry was promptly reversed after the irregularity was pointed out. Mere booking of credit in the accounts, without use or demonstrated intent to evade duty, was treated as insufficient to attract penal consequences. The penalty order was therefore set aside in favour of the assessee.

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Issues: Whether penalty was sustainable for taking Modvat credit on capital goods before installation, where the credit was not utilised and was promptly reversed.

Analysis: The credit entry was admittedly made before installation, but there was no allegation or evidence that any part of the credit was used for payment of duty. Mere entry of credit in the books, without utilisation and without any demonstrated injury to revenue, was treated as insufficient for penal consequences. The prompt reversal of the credit after the irregularity was pointed out also negatived any deliberate intention to evade duty.

Conclusion: Penalty was not warranted and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned penalty order was annulled.

Ratio Decidendi: Penalty for irregular availment of Modvat credit is not justified where the credit was never utilised for duty payment and is promptly reversed, absent deliberate intent to evade revenue.

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