Cenvat credit cannot be used to pay interest or penalty under Rule 3(3); the Revenue's challenge succeeded.

Rule 3(3) of the Cenvat Credit Rules, 2002 permits utilisation of Cenvat credit only for the specified purposes, chiefly payment of excise duty on final products and other expressly permitted liabilities. It does not authorise adjustment of interest or penalty from the balance in RG 23A Part II. The direction permitting such recovery from the credit balance was therefore inconsistent with the rule, and the Revenue's challenge succeeded.

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Issues: Whether interest and penalty could be adjusted and paid from the balance available in RG 23A Part II under the Cenvat credit scheme.

Analysis: Rule 3(3) of the Cenvat Credit Rules, 2002 permits utilisation of Cenvat credit only for the specified purposes, namely payment of duty of excise on final products and the limited categories expressly mentioned in the rule. The provision does not authorise utilisation of such credit for payment of interest or penalty. The direction allowing recovery of interest and penalty from the credit balance in RG 23A Part II was therefore inconsistent with the rule.

Conclusion: Interest and penalty could not be adjusted from the credit balance in RG 23A Part II, and the Revenue's challenge succeeded.

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