Bona fide duty payment mistake on exempt inputs did not justify penalty where no wilful device to pass on wrongful credit was shown.

Penalty under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944 was examined in relation to duty paid on non-dutiable imported inputs cleared to a job worker, which enabled credit to be taken by the recipient unit. The record showed that duty on the finished goods was otherwise payable by the noticee, substantial payments were already being made through PLA and Modvat accounts, and there was no surplus credit or deliberate device to pass on inadmissible credit. The duty payment on the exempt inputs was treated as a bona fide mistake, not a wilful act with intent to facilitate wrongful credit, so penalty was held not leviable and the show cause notice was dropped.

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Issues: Whether penalty under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944 was leviable for paying duty on non-dutiable imported inputs cleared to a job worker and thereby enabling credit to be taken by the recipient unit.

Analysis: The noticee had imported inputs without duty and cleared part of them to a sister unit functioning as a job worker. Although duty was paid on those non-dutiable inputs and the recipient unit took credit, the record showed that the duty on the finished goods manufactured at the job worker's unit was payable by the noticee, that substantial amounts were already being paid through PLA and Modvat accounts, and that there was no surplus accumulated credit requiring diversion. The surrounding arrangement and the payment pattern did not establish any deliberate device to pass on inadmissible credit. On the material placed, the payment of duty on the exempt inputs was held to be a bona fide mistake and not a wilful act with intent to facilitate wrongful credit.

Conclusion: Penalty under Rule 173Q(1)(bbb) was not leviable and the show cause notice was dropped.

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