Modvat credit penalty and Rule 57-I(3) interest turn on wrongful availment and payment within three months of demand notice.

Wrongful availment of Modvat credit was treated as sufficient to attract penalty, and the penalty of Rs. 2,000 was sustained. Interest under Rule 57-I(3) was held not recoverable where the assessee paid the amount determined within three months of receipt of the demand notice; the relevant period was computed from receipt of the adjudication order or demand notice, not from the show cause notice. On that basis, the interest demand was set aside while the penalty component remained enforceable.

---

---

Issues: (i) Whether penalty was imposable for wrongful availment of Modvat credit; (ii) Whether interest was chargeable under Rule 57-I(3) when the amount determined was paid within three months of receipt of the demand notice.

Issue (i): Whether penalty was imposable for wrongful availment of Modvat credit.

Analysis: The denial of Modvat credit had been upheld, and the wrongful availment was treated as sufficient to attract penal consequences. The penalty amount was considered modest and not excessive in the circumstances.

Conclusion: Penalty was held to be imposable and the penalty of Rs. 2,000/- was restored, in favour of Revenue.

Issue (ii): Whether interest was chargeable under Rule 57-I(3) when the amount determined was paid within three months of receipt of the demand notice.

Analysis: Interest under Rule 57-I(3) was held to be unavailable where the assessee pays the amount determined under sub-rule (1) or sub-rule (2) within three months from receipt of the demand notice. The relevant period was taken from receipt of the adjudication order or demand notice, not from the date of the show cause notice, and the payment made was found to be within time.

Conclusion: No interest was chargeable, in favour of the assessee.

Final Conclusion: The penalty component was sustained, while the interest demand was set aside, leaving the appeal only partly successful for Revenue.

Ratio Decidendi: Interest under Rule 57-I(3) is not recoverable where the assessee pays the amount determined within three months from receipt of the demand notice, and the relevant period runs from such receipt rather than from the show cause notice.

---