V.K. Agrawal, Member (T)

1. In this appeal M/s. Daewoo Motors India Ltd are only challenging the penalty imposed on them by the Commissioner under the impugned Order.

2. Shri P.K. Mittal, learned Advocate, submitted that the Appellants manufactures motor vehicles and parts thereof and avail of Modvat credit of the duty paid on the inputs as well as capital goods; that they have filed necessary declaration both for inputs and capital goods in time; that they have filed RT 12 returns along with copies of invoices on the basis of which Modvat credit had been availed of by them; that during the course of audit, the audit party alleged that Modvat credit amounting to Rs. 78,45,141/- has been wrongly availed of; that the appellants had debited the entire amount during the period October, 1998 to July, 1999 though the show cause notice was issued to them only on 14-3-2000. He, further, submitted that the Department could not allege any suppression or fraud or wilful misstatement with an intent to evade the payment of duty as they had regularly filed RT 12 returns with invoices; that suppression, etc., was not alleged in the show cause notice. However, the demand has been made for extended period as the show cause notice was issued on 14-3-2002 in respect of Modvat credit taken during the period June, 1997 to April, 98; that the Modvat credit wrongly taken by them was never utilized towards payments of duty as all along during the relevant period they were having Modvat credit of around Rs. 10 crores in balance to their credit. Finally, he submitted that out of the total Modvat credit disallowed to them, credit amounting to Rs. 33,98,355/- was taken by them on the basis of Bills of Entry relating to import under DEEC Scheme and upon discovery by themselves they had reversed even before the audit objection was raised; that out of the remaining amount of Modvat credit of more than Rs. 30 lakhs pertains to capital goods, which were eligible capital goods for the purpose of availment of Modvat credit; that credit of Rs. 11,72,806/- has been disallowed to them in respect of lubricators, grinding wheels and tools on the ground that these are not inputs but capital goods; that on this ground Modvat credit cannot be disallowed as held by the Larger Bench of the Tribunal in the case of Commissioner of Central Excise v. Modi Rubber Ltd., 2000 (119) E.L.T. 197; that credit of Rs. 2,33,235/- has been disallowed as the same was taken on the strength of original Bill of Entry; that the Board under Circular No. 441/7/CX, dated 23-2-99 has clarified that Modvat credit should not be disallowed on minor procedural lapse and before disallowing the credit the Assistant Commissioner shall conduct inquires with regard to duty paid nature of the goods and satisfies himself that the goods had been used or are intended to be used as contemplated in the Modvat Rules; that finally the amount of Rs. 29,204/- has been disallowed as the Modvat credit has been taken in respect of HSD. The learned Advocate, contended that substantial portion of the Modvat credit which has been disallowed to them was infact available to them under the law but they had reversed the same as a law abiding citizen on being pointed out by the audit party; that moreover more than Rs. 33 lakhs credit which was wrongly availed was detected by themselves and reversed even before the audit objections and in any case the entire amount has been reversed by them much before the issue of show cause notice and as such no penalty is imposable on them.

3. Countering the arguments Ms. Charul Baranwal, learned Senior Departmental Representative, submitted that the fact that the Appellants had reversed the entire amount of Modvat credit goes to show that the credit was not available to them and the same had been taken by them wrongly; that as they had already paid the entire amount, the limitation clause under Central Excise Act was not applicable; that on account of availment of wrong Modvat credit, penalty is imposable on them.

4. We have considered the submissions of both the sides. The Appellants have not contested the disallowance of Modvat credit and they are only challenging the imposition of penalty on the ground that there was no mala fide intention on their part in taking the said amount of Modvat credit in their records. Rule 173Q(1)(bb) of the Central Excise Rules, 1944 provides for imposition of penalty on a manufacturer for taking the Modvat credit wrongly. As the Appellants have not challenged the disallowance of Modvat credit, penalty becomes imposable on them for availing the Modvat credit wrongly. It has been held by the Supreme Court in the case of Zunjarrao Bhikaji Nagarkar v. Union of India, 1999 (112) E.L.T. 772 that under Rule 173Q apart from the offending goods which are liable for confiscation the present concerned with that shall be liable to penalty up to the amount specified in the Rule. It is difficult to accept the argument of the Appellants that levy of penalty is discretionary. It is only the amount of penalty which is discretionary. Accordingly, we hold that penalty is imposable on the Appellants. However, we observe that the fact of Appellants filing RT 12 returns along with invoice or bill of entry on the basis of Modvat credit had been taken by them, has not been disputed by the Revenue. This fact coupled with the fact that entire amount has been reversed by them immediately after being pointed out by the audit party. Penalty equal to the amount of Modvat credit disallowed is not warranted in the present matter. In our view, nominal amount of penalty will meet the ends of justice. We, therefore, reduce the amount of penalty to Rs. 2 lakhs only. The appeal is thus partly allowed.