CENVAT credit on eligible inputs for future manufacture is not wrongful merely because the inputs were later unused and reversed.

CENVAT credit validly taken on eligible inputs intended for future manufacture does not become wrongful merely because the inputs remain unutilised for a period and the credit is later reversed with interest. Rule 13 of the Cenvat Credit Rules, 2002 applies only where credit is taken wrongly or in contravention of the rules; on the facts stated, that statutory condition was not met. Penalty and confiscation were therefore not attracted, and the assessee succeeded on the issue.

---

---

Issues: Whether penalty was leviable under Rule 13 of the Cenvat Credit Rules, 2002 when credit was taken on inputs intended for future manufacture but not utilised for about two years and was later reversed with interest.

Analysis: Rule 13 applies where CENVAT credit is taken wrongly or in contravention of the rules in respect of inputs or capital goods. On the facts recorded, the inputs were eligible inputs and the credit was taken for proposed future manufacture. The mere fact that the inputs remained unutilised for a period and the credit was later reversed did not make the original availment wrongful. The statutory condition for confiscation or penalty under Rule 13 was therefore not satisfied.

Conclusion: Penalty was not leviable and the assessee succeeded on this issue.

Ratio Decidendi: Where CENVAT credit is validly taken on eligible inputs intended for future manufacture, later non-utilisation of those inputs does not, by itself, amount to wrongful availment or attract penalty under Rule 13 of the Cenvat Credit Rules, 2002.

---