Cenvat credit penalty requires fraud or intent to evade; mere inadmissibility does not trigger the stricter penalty provision.

Penalty under rule 13(2) of the Cenvat Credit Rules, 2002 is not automatic merely because Cenvat credit is found inadmissible. The stricter penalty applies only where wrongful availment or utilisation is shown to involve fraud, wilful misstatement, collusion, suppression of facts, or contravention with intent to evade duty. Applying the principles aligned with section 11AC of the Central Excise Act, 1944, the HC noted that no categorical finding of fraud or intent to evade had been recorded against the assessee. Penalty under rule 13(2) was therefore not attracted, and deletion of the penalty was upheld.

---

---

Issues: Whether penalty under rule 13 of the Cenvat Credit Rules, 2002 was exigible in the absence of a categorical finding of fraud, wilful misstatement, collusion, suppression of facts, or intent to evade duty.

Analysis: Rule 13(1) provides for confiscation and penalty where Cenvat credit is wrongly taken, while rule 13(2) applies a stricter consequence only where the wrongful availment or utilisation is on account of fraud, wilful misstatement, collusion, suppression of facts, or contravention with intent to evade payment of duty. The Court applied the principles stated in the Supreme Court decisions on section 11AC of the Central Excise Act, 1944, and held that penalty of the kind contemplated by rule 13(2) is not automatic merely because credit is found inadmissible. In the present case, no finding had been recorded that the assessee acted fraudulently or with intent to evade duty.

Conclusion: Penalty under rule 13(2) was not attracted, and the deletion of penalty was justified.

---