Wrongful Modvat credit and unsupported PLA entries justify company penalty, but personal penalty needs proof of knowledge.

Wrongful Modvat credit taken without supporting duty-paid documents, along with PLA entries made without depositing the amount, was treated as conduct attracting penalty on the company because it facilitated removal of excisable goods without duty under Rule 173Q. The penalty was sustained but moderated in quantum. Personal penalty on the Managing Director under Rule 209A was not justified because the record did not show his knowledge, reasonable belief, or involvement in the irregularity, and the absence of the required mental element prevented confiscation-based liability. The company remained liable, while the individual penalty was set aside.

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Issues: (i) whether penalty on the company for taking fake Modvat credit and making PLA entries without depositing the amount was liable to be sustained, and (ii) whether penalty on the Managing Director under Rule 209A was justified.

Issue (i): whether penalty on the company for taking fake Modvat credit and making PLA entries without depositing the amount was liable to be sustained

Analysis: The company did not dispute that credit was entered in RG 23A Part II without supporting duty-paying documents and that the PLA entry was made without depositing the amount in the bank under TR-6. The company also accepted liability for the wrong credit. Such wrongful availment enabled removal of excisable goods without payment of duty and attracted the penal provision under Rule 173Q of the Central Excise Rules, 1944. However, the quantum of penalty required moderation having regard to the total amount involved.

Conclusion: Penalty on the company was sustainable, but it was reduced from Rs. 25 lakhs to Rs. 15 lakhs.

Issue (ii): whether penalty on the Managing Director under Rule 209A was justified

Analysis: Rule 209A requires knowledge or reasonable belief that the goods are liable for confiscation. The record did not show that the Managing Director had personal knowledge of the wrongful credit or the PLA entry without deposit, and no evidence established his involvement in the irregularity. In the absence of proof of the necessary mental element, penalty could not be imposed on him.

Conclusion: Penalty on the Managing Director was not justified and was set aside.

Final Conclusion: The company remained liable to penalty, but the amount was reduced, while the personal penalty on the Managing Director was annulled.

Ratio Decidendi: A wrongful credit entry attracting removal of goods without duty justifies penalty on the company under Rule 173Q, but personal penalty under Rule 209A requires proof of knowledge or reasonable belief of confiscability.

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