Modvat credit penalty reduced where outside-factory storage was sought in advance, credit was reversed promptly, and no double credit arose.

Penalty for taking Modvat credit on inputs stored outside the factory was reduced because the assessee had sought permission due to paucity of space, the department gave no response, the credit was reversed promptly when pointed out, and there was no allegation of double credit. On these undisputed facts, the conduct warranted substantial mitigation rather than a token penalty, so the penalty was cut from Rs. 1,00,000 to Rs. 2,000.

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Issues: Whether the penalty imposed for taking Modvat credit on inputs stored outside the factory premises deserved reduction.

Analysis: The factual position was undisputed: because of paucity of space, permission had been sought to store Modvat inputs in premises outside the factory, the departmental officer had not responded, the credit had been reversed promptly when pointed out, and there was no allegation of double credit. In these circumstances, the penalty could not be treated as merely token.

Conclusion: The penalty was reduced from Rs. 1,00,000/- to Rs. 2,000/-.

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