Modvat credit penalty reduced where excess credit was promptly reversed and disclosed, with no mala fide conduct found.

Wrong availment of Modvat credit may still attract penalty even where the assessee promptly reverses the excess credit and discloses the mistake to the department. Immediate voluntary correction, coupled with no allegation of repeated misconduct or mala fide intent, can operate as a mitigating factor for penalty quantification. The penalty was upheld in principle, but its amount was substantially reduced as justified on the facts.

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Issues: Whether the penalty imposed for wrong availment of Modvat credit required reduction in view of the assessee's immediate reversal of the excess credit and disclosure to the department.

Analysis: The disputed credit had been taken twice on the same day, but the assessee voluntarily reversed it when the mistake came to notice and informed the department. The appellate authority treated these facts as material mitigating circumstances and also noted the absence of any allegation of repeated wrongdoing or mala fide conduct. On that basis, the authority held that penalty was still leviable for the wrong credit, but the quantum deserved substantial reduction.

Conclusion: The reduction of penalty from Rs. 13 lakhs to Rs. 1 lakh was justified and required no interference.

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