Wrong MODVAT credit availment before goods receipt sustained as penal breach, with no further reduction in penalty.

Wrong availment of MODVAT credit before receipt of imported goods in the factory was treated as an irregular and unlawful availment, attracting penalty under Rule 173Q and Rule 226 of the Central Excise Rules, 1944. Although there was a claimed misunderstanding about the stage for taking credit, the Tribunal noted that the lower appellate authority had already considered the nature of the violation, the interest element, and the surrounding circumstances while reducing the penalty. The plea of bona fide mistake did not justify any further relief, and no additional reduction in penalty was warranted; the reduced penalty was sustained.

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Issues: Whether further reduction of the penalty levied for wrong availment of MODVAT credit before receipt of goods in the factory was justified.

Analysis: The applicants had availed MODVAT credit on the entire imported quantity before the goods were actually received in the factory, which was an irregular availment not permitted by law. The Tribunal noted that there had been a misunderstanding as to the stage at which credit could be taken, but also found that the lower appellate authority had already taken into account the circumstances, including the interest element and the nature of the violation, while reducing the penalty. The Tribunal further observed that the appellants were liable to penalty under Rule 173Q and Rule 226 of the Central Excise Rules, 1944 for the admitted violation, and that the plea of bona fide mistake did not warrant any additional reduction.

Conclusion: No further reduction in penalty was warranted, and the penalty as reduced below was sustained.

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