CENVAT credit penalty not sustainable where irregular credit was reversed, interest paid, and suppression of facts was unproved.

Penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was held unsustainable because the assessee reversed the irregularly availed CENVAT credit after it was pointed out, paid the applicable interest before adjudication, and had regularly disclosed the credit in returns. The record did not establish wilful suppression of facts or intent to evade duty, and those essential ingredients for penalty were therefore absent. The penalty order was set aside in favour of the assessee.

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Issues: Whether penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was sustainable when the irregularly availed CENVAT credit was reversed and the applicable interest was paid before adjudication, and the records showed regular disclosure in returns.

Analysis: The appellant reversed the irregular credit immediately after it was pointed out by the Audit / Anti-Evasion wing. The record also showed that interest attributable to the extent of credit actually utilised was quantified and paid before adjudication, though after issuance of the notice. Regular filing of returns and disclosure of credit availment negatived the allegation of wilful suppression of facts with intent to evade duty. In these circumstances, the ingredients necessary for imposing penalty were not established.

Conclusion: Penalty was not imposable and the penalty order was set aside in favour of the assessee.

Ratio Decidendi: Where irregular CENVAT credit is reversed, applicable interest is paid, and there is no proved suppression of facts or intent to evade, penalty under the CENVAT Credit Rules read with Section 11AC of the Central Excise Act, 1944 is not sustainable.

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