Unutilised Cenvat credit reversed before use bars personal penalty where interest is paid and depreciation was also claimed.

Personal penalty under the Central Excise Act was considered unsustainable where Cenvat credit on capital goods had been taken but not utilised, depreciation had also been claimed under the Income-tax Act, and the credit was reversed with interest before issuance of the show cause notice. The analysis applied the Larger Bench principle that no penalty is warranted when unutilised credit is reversed before use, and treated the voluntary reversal and interest payment as negating the ingredients for personal penalty. On that basis, deletion of the penalty was justified.

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Issues: Whether personal penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the assessee had availed Cenvat credit on capital goods, had also claimed depreciation under Section 32 of the Income-tax Act, 1961, and had reversed the credit with interest before issuance of the show cause notice.

Analysis: The credit had been taken but was not utilised and was reversed on being pointed out, along with payment of interest. In such circumstances, and following the ratio of the Larger Bench decision that no penalty is warranted where unutilised credit is reversed before use, the ingredients for imposing personal penalty were absent.

Conclusion: The penalty under Section 11AC was not sustainable and its deletion was justified.

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