Revenue neutrality defeats intent to evade duty, making penalty under Rule 173Q unsustainable.

Penalty under Rule 173Q of the Central Excise Rules, 1944 was held unsustainable because the duty paid on the final product was available as Modvat credit to the customer, making the transaction revenue neutral. On that basis, the Tribunal found that no net duty evasion arose and an intention to evade duty could not be inferred. The penalty issue was treated as already covered by earlier Tribunal decisions applying the same principle, and the appeal succeeded on the penalty question.

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Issues: Whether penalty was sustainable under Rule 173Q of the Central Excise Rules, 1944 where the duty paid was available as Modvat credit to the customer, making the transaction revenue neutral and negating any intention to evade duty.

Analysis: The Tribunal accepted that the decisive consideration was the absence of net duty evasion, since the duty paid on the final product was available as credit to the recipient. On that basis, the matter was treated as revenue neutral, and the existence of an intention to evade duty was not made out. The Tribunal followed its earlier decisions on the same principle and held that the limited penalty issue had already been covered.

Conclusion: Penalty under Rule 173Q was not justified and the appeal succeeded on the penalty issue.

Ratio Decidendi: Where the duty paid is available as Modvat credit and the transaction is revenue neutral, an intention to evade duty cannot be inferred and penalty is not sustainable.

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