Modvat inter-factory clearance and delayed duty payment did not justify penalty where revenue suffered no loss and conduct was bona fide

Removal of intermediate forgings to another factory under the Modvat scheme, followed by delayed payment of duty and no availing of Modvat credit, was treated as causing no loss of revenue. The conduct was found bona fide rather than mala fide, and the alleged non-observance of excise formalities and contravention of the notification did not justify penal action. On these facts, the penalty was held unsustainable and set aside in favour of the assessee.

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Issues: Whether penalty was warranted for removal of intermediate forgings to another factory and delayed payment of duty, where the duty was ultimately paid and Modvat credit was not availed.

Analysis: The dispute arose from inter-factory clearance of forgings under the Modvat scheme, with alleged non-observance of excise formalities and contravention of the relevant notification. The recorded facts showed that duty was eventually paid by the assessee, but Modvat credit that could have been taken on timely payment was foregone. The conclusion reached was that this caused no eventual loss of duty to the revenue and that the conduct was bona fide, not mala fide. In these circumstances, the penalty already imposed was found to be unjustified.

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

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