Bona fide Modvat credit claim on capital goods defeated penalty, though unutilised wrong credit alone did not bar it.

Penalty under Rule 173Q was considered unsustainable where Modvat credit on electric wires and cables had been taken under Rule 57Q on a bona fide belief that the goods qualified as capital goods, supported by earlier Tribunal rulings. On those facts, the Tribunal found no basis for imposing penalty and set it aside. It also rejected the broader observation that penalty could never arise merely because the wrong credit remained unutilised, and deleted that part of the Commissioner (Appeals)' reasoning.

---

---

Issues: Whether penalty under Rule 173Q was sustainable where Modvat credit had been taken under Rule 57Q in respect of electric wires and cables, and whether the availability or non-utilisation of the credit affected the imposition of penalty.

Analysis: The Tribunal accepted that the assessee had taken the credit under a bona fide claim that the goods were capital goods, supported by earlier Tribunal decisions allowing credit on electric wires and cables. On that footing, it found no case for imposition of penalty in the circumstances of the case. At the same time, it held that the legal position suggested by the Commissioner (Appeals), namely that penalty could not be imposed merely because the wrong credit was lying unutilised, was incorrect.

Conclusion: The penalty was set aside in favour of the assessee, while the contrary observation that unutilised wrong credit could not attract penalty was deleted.

---