Modvat credit reversal defeats equivalent duty demand, while confiscation of immovable assets requires exceptional circumstances.

Modvat credit taken on gate passes not issued in the assessee's name and not endorsed to it was treated as inadmissible and its reversal was sustained. After that reversal, the equivalent duty demand was set aside because the basis for confirming it no longer survived. The penalty and redemption fine on the goods were sustained, but confiscation of land, building and machinery was held unwarranted since such extreme confiscation under Rule 173Q(2)(a) is reserved for exceptional cases such as habitual offending; the related redemption fine was remitted.

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Issues: (i) whether Modvat credit wrongly taken on gate passes not in the assessee's name and not endorsed to it was liable to reversal; (ii) whether the demand of equivalent duty could be sustained after reversal of the inadmissible credit; (iii) whether the penalty, redemption fine and confiscation of land, building and machinery were justified.

Issue (i): Whether Modvat credit wrongly taken on gate passes not in the assessee's name and not endorsed to it was liable to reversal.

Analysis: The credit was taken on documents which did not validly support availment of Modvat. The challenge to this part of the order was not pressed on merits and the reversal of such credit was treated as proper.

Conclusion: The reversal of Modvat credit was sustained.

Issue (ii): Whether the demand of equivalent duty could be sustained after reversal of the inadmissible credit.

Analysis: Once the inadmissible Modvat credit had been reversed, the foundation for confirming an equivalent duty demand disappeared. The original authority had also not separately discussed the basis for sustaining that demand.

Conclusion: The equivalent duty demand was set aside.

Issue (iii): Whether the penalty, redemption fine and confiscation of land, building and machinery were justified.

Analysis: The penalty and fine were not found to be excessive having regard to the contraventions and the value of the goods. However, confiscation of land, building and similar immovable assets under Rule 173Q(2)(a) was treated as an extraordinary measure meant for habitual offenders, and that basis was absent in the case.

Conclusion: The penalty and redemption fine were sustained, but confiscation of land, building and machinery was set aside and the related redemption fine was remitted.

Final Conclusion: The appeal succeeded only to the extent of deleting the equivalent duty demand and the confiscation of immovable assets, while sustaining the reversal of Modvat credit and the monetary penalty and fine on the goods.

Ratio Decidendi: Once inadmissible Modvat credit is reversed, an equivalent duty demand founded solely on that credit cannot survive, and confiscation of land or building under the penal rule is warranted only in exceptional cases such as habitual offending.

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