Wrongful Modvat credit reversal before notice does not erase mandatory penalty and interest under Rule 57-I.

Wrongful availment of Modvat credit twice against the same Bill of Entry was treated as a Rule 57-I case, not as short payment or non-payment of duty under section 11A. The rule made penalty equal to the wrongly availed credit and interest mandatory, so reversal of credit before issuance of the show cause notice did not extinguish the statutory liability. The notice was not invalid merely because it cited sections 11AC and 11AB instead of Rule 57-I, since the factual basis of the demand was clear and no prejudice was shown.

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Issues: Whether wrongful availment of Modvat credit, reversed before issuance of the show cause notice, still attracted penalty and interest under Rule 57-I, and whether incorrect citation of Sections 11AC and 11AB in the notice invalidated the demand.

Analysis: The credit was availed twice against the same Bill of Entry and, therefore, the case was one of wrongful availment of Modvat credit governed by Rule 57-I rather than a case of short payment or non-payment of duty under Section 11A of the Central Excise Act, 1944. Rule 57-I specifically provided for penalty equal to the credit wrongly availed and liability to pay interest, making the consequence mandatory. Reversal of credit before issuance of the show cause notice did not erase the statutory liability. The notice was not vitiated merely because it mentioned Sections 11AC and 11AB instead of Rule 57-I, since the respondents were aware of the factual basis for the demand and no prejudice was caused.

Conclusion: Penalty and interest under Rule 57-I were rightly attracted, and the enhancement of penalty as well as confirmation of interest was justified.

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