Modvat credit disclosure in statutory returns defeats penalty where wrongful credit was reversed before notice

Penalty under Rule 173Q(1)(bb) was found unwarranted where Modvat credit on an undeclared final product was nevertheless disclosed in statutory returns and classification records, and the assessee voluntarily debited the wrongly taken credit before the show cause notice. The Tribunal treated the omission of a separate declaration as a procedural lapse, not deliberate suppression, and followed its earlier view that such disclosure in the records does not justify the extended period or penal action on the same facts. Penalty was therefore set aside.

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Issues: Whether penalty under Rule 173Q(1)(bb) of the Central Excise Rules, 1944 was justified where Modvat credit was taken on an undeclared final product, but the availment was reflected in statutory returns and the duty was voluntarily debited before issuance of the show cause notice.

Analysis: The return filings and classification list disclosed the utilisation of Modvat credit, and the assessee had itself reversed the wrongly availed credit by debiting the duty in the Personal Ledger Account before the demand was pursued. In the circumstances, the Tribunal followed its earlier decisions holding that non-filing of a separate declaration, when the availment is otherwise reflected in the statutory records, does not warrant invocation of the extended period or penal action on the same facts. The Court treated the case as one of procedural lapse rather than deliberate suppression.

Conclusion: Penalty was not sustainable and was set aside.

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