Cenvat credit penalty cannot survive without fraud or intent to evade, especially after reversal with interest.

Penalty for wrongful availment of Cenvat credit was held unsustainable where the disputed credit was reversed in full with interest before the show cause notice and no duty demand was proposed or confirmed. The record did not establish the statutory ingredients for action under section 11AC, namely fraud, suppression of facts, wilful misstatement, or contravention with intent to evade duty. In the absence of those elements, the penal provision could not be invoked, and the penalty order was set aside in favour of the assessee.

---

---

Issues: Whether penalty could be sustained for wrongful availment of Cenvat credit under the Cenvat Credit Rules read with section 11AC of the Central Excise Act, 1944 when the disputed credit had been reversed with interest before issuance of the show cause notice and no duty demand was proposed or confirmed.

Analysis: The disputed credit was reversed in full along with interest as soon as it was pointed out. The record did not disclose the ingredients required for invoking section 11AC, namely fraud, suppression of facts, wilful misstatement, or contravention with intent to evade duty. The show cause notice did not demand duty and the adjudication order also did not confirm any duty demand. In these circumstances, the statutory basis for imposing penalty was not made out.

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

Final Conclusion: The impugned penalty order could not stand in the absence of the necessary elements for penal action and the appeal succeeded.

Ratio Decidendi: Penalty under section 11AC and the corresponding Cenvat Credit Rules provisions cannot be sustained unless the statutory ingredients of fraud, suppression, wilful misstatement, or intent to evade duty are established, particularly where the disputed credit has been reversed with interest and no duty demand survives.

---