Modvat credit accepted, penalty under Central Excise Rules could not be sustained for absence of any rule violation.

Penalty under the Central Excise Rules was not sustainable where the assessee's Modvat credit claim had already been accepted as legally admissible. Once the appellate authority upheld the credit, the foundation for treating the claim as wrongful disappeared, and no rule violation remained to attract penal action. On that basis, penalty under Rule 173Q could not be levied, and the assessee succeeded on the penalty issue.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules was sustainable when the assessee's availment of Modvat credit had been accepted.

Analysis: The availment of Modvat credit was upheld by the appellate authority, and once the credit itself was held to be legally admissible, the basis for treating the claim as wrongful ceased to exist. Penalty under the Central Excise Rules is attracted only on violation of the rules, and in the absence of any such violation, the levy of penalty could not be sustained.

Conclusion: The penalty was not exigible and the assessee succeeded on the penalty issue.

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