ORDER
P.S. Bajaj, Member (J)
1. This appeal has been preferred against the impugned order-in-original dated 29-1-2002 passed by the Commissioner of Central Excise vide which he had confirmed the recovery/reversal of the Modvat credit of Rs. 33,68,240/- under Rule 57-I of the erstwhile Central Excise Rules and imposed penalty of equal amount under Section 11AC read with Rule 173-Q, and demanded interest thereon on account of inadmissible Modvat credit availed by them, during the disputed period from June, 1999 to December, 1999.
2. The learned counsel has not contested the validity of the impugned order to the extent of disallowing the Modvat credit of the disputed amount under Rule 57-I of the erstwhile Central Excise Rules, to the appellants. The appellants even had already debited that amount vide RG23-A,
Part-II, entry No. 2331, dated 27-1-2000.
3. The learned counsel has only questioned the legal propriety of the imposition of penalty equal to the Modvat credit amount, under Section 11AC and demand of interest thereon under Section 11AB of the Act on the ground that provisions of both these sections are not attracted as the Modvat credit amount cannot be treated as duty, which the appellants failed to pay or which was short levied or non-levied on them, initially. He has, however, submitted that penalty could be imposed for wrong availment of the Modvat credit, under Rule 173Q or Rule 57-1(4) of the Rules, but the same had not been invoked in the show cause notice. Therefore, the penalty as well as the interest demanded from the appellants under the said sections deserves to be set aside.
4. On the other hand, the learned DR, has only reiterated the correctness of the impugned order.
5. We have gone through the impugned order and we find that the appellants wrongly availed the Modvat credit of the disputed amount during the period in question, referred to above, and the same had been disallowed through the impugned order by the Commissioner. The wrong availment of Modvat credit by the appellants could not be termed as non-payment, short payment or short levy of duty, on their part, which is essential for invoking the provisions of Sections 11AC and 11AB for imposing penalty and demanding interest on short paid or non-levy of duty amount. Therefore, the provisions of these sections could not be invoked for imposing the penalty equal to the amount of the Modvat credit under Section 11AC, and for demanding interest thereon under Section 11AB of the Act. The impugned order of the Commissioner in this regard, therefore, cannot be sustained and as such is set aside. The penalty equal to the credit amount as determined by the adjudicating authority in the impugned order, could only be imposed under Rule 57-I(4) of the Rules. But the said rule had not been invoked and referred to for demanding the penalty in the show cause notice. Therefore, the penalty under the said rule cannot be imposed on the appellants.
6. However, the penalty under Rule 173Q could be imposed and that rule had been referred to in the show cause notice for imposition of penalty on the appellants. In the impugned order also, the Commissioner has imposed penalty equal to the amount of credit disallowed under the said rule, along with Section 11AC Since the provisions of Section 11AC are not applicable to the case of the appellants, as observed above, the penalty under Rule 173Q can be maintained against them. But, keeping in view the facts and circumstances of the case and the fact that the appellants had already reversed the entire credit amount disallowed to them, before passing of the impugned order by the Commissioner, we reduce the penalty amount to Rs. 1 lakhs (rupees one lakh only) under Rule 173Q of the Rules on the appellants.
7. In view of the discussion made above, the impugned order of the Commissioner stands accordingly modified. The appeal of the appellants stands disposed of in the above terms.