Rule 173Q penalty fails where Modvat credit is accepted as rightly availed and no rule violation is found.

Penalty under Rule 173Q of the Central Excise Rules cannot survive where Modvat credit has been accepted as rightly availed. The rule presupposes a violation of the excise rules, and once the appellate authority found no wrongful availment of credit, the legal basis for penalty disappeared. On that footing, the penalty was held unsustainable and the appeals were allowed.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules could be sustained when the availment of Modvat credit had been accepted.

Analysis: Once the Commissioner (Appeals) accepted that the Modvat credit had been rightly availed, there remained no legal basis to uphold a penalty for wrong availment under Rule 173Q. Penalty under that rule presupposes a violation of the rules, and where no such violation is found, the levy of penalty cannot survive.

Conclusion: The penalty was not sustainable and the appeals were allowed.

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