Irregular Cenvat credit penalty fails where goods were received, records were kept, interest was paid, and no collusion was shown.

Penalty for alleged irregular Cenvat credit was treated as unsustainable where the assessee had received and used the goods, maintained documentary evidence, paid the supplier, and reversed the credit with interest after the irregularity was pointed out. The record showed no incriminating material, no inculpatory statement, and no evidence of connivance, collusion, or participation in any fraudulent credit chain. On those facts, the conduct was regarded as bona fide and not warranting penal action, and the penalty was set aside.

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Issues: Whether penalty was sustainable for the alleged irregular availment of Cenvat credit when the duty and interest had been paid, the goods had been received and used, and no evidence showed connivance or collusion by the appellant.

Analysis: The material on record showed that the appellant had paid the supplier, received scrap, maintained documentary evidence, and reversed the credit with interest once the irregularity was pointed out. The record did not contain any incriminating material establishing participation by the appellant in any fraudulent credit chain, and there was no inculpatory statement against it. In these circumstances, the appellant's conduct was treated as bona fide and the alleged lapse was not found to justify penal action.

Conclusion: The penalty was not sustainable and was set aside in favour of the appellant.

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