Interest on reversed Modvat credit was not leviable when the credit was never utilised and was reversed before notice.

Interest on ineligible Modvat credit did not arise where the credit was reversed before the show cause notice and had not been utilised. Reading Rule 57U(3) with Rule 57U(5), interest begins only after the stipulated period from demand determination, so no interest period accrued on these facts. The liability to pay interest under Rule 57U(5) was therefore not attracted.

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Issues: Whether interest was leviable under Rule 57U(5) of the Central Excise Rules, 1944 on ineligible Modvat credit that had been reversed before issue of the show cause notice and had not been utilised.

Analysis: On a reading of Rule 57U(3) and Rule 57U(5), interest starts running only after the stipulated period from the date of receipt of the demand determination. As the credit had been reversed before the show cause notice and had not been utilised, the period for which interest could run was nil. The liability to interest therefore did not arise on the facts found.

Conclusion: Interest under Rule 57U(5) was not leviable, and the assessee succeeded on the interest issue.

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