Modvat penalty reduction turns on pre-notice credit reversal and the principle that fiscal penalties must stay corrective.

Penalty for removal of inputs without following the prescribed Modvat procedure was considered reducible where credit had been reversed before the show cause notice and the surrounding circumstances had already been taken into account. Fiscal penalties were treated as civil in nature, and the quantum was to remain corrective rather than excessive. On those facts, the reduced penalty was sustained at the modified level.

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Issues: Whether the penalty imposed for removal of inputs without following the prescribed Modvat procedure required reduction.

Analysis: The appellant had reversed the Modvat credit before the show cause notice, and the authority had already taken into account the circumstances of the case. Penalty for fiscal violations was treated as civil in nature, and the quantum was assessed on the footing that it should be corrective rather than excessive. On the facts, the reduction of penalty was considered warranted.

Conclusion: The penalty was reduced to Rs. 50,000, and the appeal was disposed of with that modification.

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