Settlement immunity for disclosed duty liability granted, while wrongly availed Modvat credit remained liable to statutory interest.

Where duty liability is fully disclosed in settlement proceedings, accepted by the applicants, and paid before final disposal, immunity from prosecution and penal liability may be granted under the settlement power. The settlement body also held that wrongly availed Modvat credit could not remain without interest consequences, and applied the relevant interest provisions to the inadmissible credits. Immunity from prosecution and penalty was therefore granted, while simple interest at 10% per annum was imposed on the inadmissible credit in favour of Revenue.

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Issues: (i) Whether immunity from prosecution and penal liability under the Central Excise Act, 1944 should be granted on the basis of the applicants' disclosure and payment of duty liability; (ii) Whether interest was payable on the wrongly availed Modvat credit and at what rate.

Issue (i): Whether immunity from prosecution and penal liability under the Central Excise Act, 1944 should be granted on the basis of the applicants' disclosure and payment of duty liability.

Analysis: The applicants admitted the duty liability disclosed in the show cause notice, later accepted the full amount, and paid the entire duty before final disposal. The record showed cooperation in the settlement proceedings and disclosure of the liability covered by the applications. On that basis, the grant of immunity fell within the statutory power governing settlement and immunity.

Conclusion: Immunity from prosecution and from penal liability was granted in favour of the applicants.

Issue (ii): Whether interest was payable on the wrongly availed Modvat credit and at what rate.

Analysis: The applications involved wrong availment of credit and use of inadmissible credits for discharging duty on finished goods. The settlement body held that such undue financial accommodation could not be left without interest liability. It applied the relevant interest provisions and fixed simple interest at 10% per annum on the inadmissible credits.

Conclusion: Interest was held payable at 10% per annum on the inadmissible credits in favour of Revenue.

Final Conclusion: The settlement applications were concluded by accepting the duty already paid, granting immunity from prosecution and penalty, and imposing interest on the inadmissible credit availed.

Ratio Decidendi: Where duty liability is fully disclosed, accepted, and paid in settlement proceedings, immunity may be granted under the settlement provisions, but wrongly availed credit can still attract statutory interest.

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