Modvat credit time-limit breach supported penalty, but prompt reversal justified reduction in the penalty amount.

Modvat credit taken on duty-paying documents issued more than six months earlier breached the time-limit under Rule 57Q and was not a mere procedural lapse. The absence of intent to evade duty did not bar penalty on these facts, so penalty was sustainable in principle. However, because the credit was reversed shortly after being taken and the surrounding circumstances warranted leniency, the penalty was reduced to a nominal amount in favour of the assessee.

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Issues: Whether penalty was sustainable for availing Modvat credit on duty-paying documents issued more than six months earlier, and whether the penalty deserved reduction.

Analysis: The credit was taken on documents issued six months prior to availing the credit, contrary to the time-limit prescribed under Rule 57Q of the Central Excise Rules, 1944. The lapse was therefore not a mere procedural irregularity. On these facts, the plea that penalty could not be imposed in the absence of intent to evade duty was not accepted. However, the credit had been reversed within a short time after being taken, and the overall circumstances justified interference with the quantum of penalty.

Conclusion: Penalty was upheld in principle, but reduced to Rs. 5,000 in favour of the assessee.

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