Bona fide belief and MODVAT procedure breach did not justify penalty in car heater assembly manufacture.

Penalty for failure to follow the prescribed excise procedure was not treated as automatic in the MODVAT context. The Tribunal noted that the assessee received major inputs under the procedure contemplated by Rule 57F(2), used some own inputs to manufacture car heater assemblies, and that duty had ultimately been paid with MODVAT credit taken by the recipient. It held that surrounding circumstances, including the assessee's bona fide belief that the goods were being received under the prescribed procedure with departmental permission, had to be considered. On those facts, penalty was held not imposable and relief was granted to the assessee.

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Issues: Whether penalty was imposable for failure to follow the prescribed excise procedure while manufacturing and clearing car heater assemblies under the MODVAT-related arrangement.

Analysis: The assessee received major inputs from another manufacturer under the procedure contemplated by Rule 57F(2) and also used some own inputs for manufacture of car heater assemblies. The duty ultimately stood paid and the recipient had taken MODVAT credit. The Tribunal held that penalty is not automatic merely because a provision is violated, and that the surrounding facts, including the assessee's bona fide impression that the goods were being received under the prescribed procedure with departmental permission, had to be considered. On those facts, the Tribunal found that the assessee had acted under a bona fide belief and that imposition of penalty was not justified.

Conclusion: Penalty was held not imposable and the appeal was allowed in favour of the assessee.

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