Cenvat credit reversal for job-worker inputs delayed beyond 180 days attracts interest and penalty, though penalty may be reduced.

Rule 4(5)(a) of the Cenvat Credit Rules was treated as a self-contained provision requiring reversal of credit if inputs sent to job workers were not received back within 180 days. Delayed reversal after expiry of that period was regarded as wrongful utilisation of credit, justifying recovery of interest and invocation of penalty because the delay caused loss to the exchequer. The Tribunal, however, considered the original penalty excessive for the nature of the lapse and reduced it to the stated amount.

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Issues: Whether, under Rule 4(5)(a) of the Cenvat Credit Rules, the assessee was required to reverse the credit when inputs sent to job workers were not received back within 180 days, and whether interest and penalty were correctly imposed for delayed reversal.

Analysis: The time limit of 180 days in Rule 4(5)(a) was treated as governing not only the return of inputs from the job worker but also the reversal of the credit taken on those inputs. The Tribunal held that the rule was self-contained and that delayed reversal after the expiry of 180 days amounted to wrongful utilisation of credit. It further held that the provisions relating to recovery of interest and penalty were correctly invoked, as the delay caused loss to the exchequer. At the same time, the Tribunal found that the penalty imposed was excessive having regard to the nature of the lapse.

Conclusion: The demand of interest and the invocation of penalty were upheld, but the penalty was reduced to Rs. 50,000.

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