Modvat credit penalty unsustainable where no specific Rule 57GG breach was established and credit benefit was undisputed

Penalty under Rule 173Q was considered unsustainable where Modvat credit had not been denied and the alleged breach of Rule 57GG was not specifically identified. The traders had availed credit on manufacturers' invoices and passed it on under the scheme, while the receipt of goods, duty payment, credit availment and onward passing of credit were undisputed. As the duplicate invoice was said to have been lost after receipt of goods and no definite contravention of Rule 57GG was established, penal action was held unjustified. The penalty was accordingly set aside.

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Issues: Whether penalty was sustainable under Rule 173Q of the Central Excise Rules, 1944 for alleged contravention of Rule 57GG of the Central Excise Rules, 1944 when the Modvat credit itself was not denied and no specific violated provision was identified.

Analysis: The appellants were registered traders under Rule 174 of the Central Excise Rules, 1944 and had availed Modvat credit on the strength of the manufacturers' invoice, subsequently passed it on under Rule 57GG. The receipt of goods, payment of duty, availment of credit and passing on of credit were not disputed. The duplicate invoice was stated to have been lost after receipt of goods, and the Revenue could not point out which specific requirement of Rule 57GG had been breached so as to attract penal action under Rule 173Q. Where the substantive benefit under the scheme is not denied and no definite contravention is established, imposition of penalty is not justified.

Conclusion: The penalty was not sustainable and was set aside.

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