Unutilized Cenvat credit reversed before notice does not attract interest, and reduced penalty may stand absent mala fide

Inadmissible Cenvat credit reversed before issuance of the show cause notice and left unutilized did not attract interest under Section 11AB, because no duty benefit had been derived from the credit. The record also showed no mala fide, and the credit had been disclosed with the knowledge of jurisdictional Central Excise officers; on that basis, the reduced penalty under Rule 13 of the Cenvat Credit Rules, 2002 was upheld. The revenue's challenge therefore failed and the relief granted to the assessee was maintained.

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Issues: Whether interest under Section 11AB was payable on Cenvat credit that had been reversed before issuance of the show cause notice and had remained unutilized in the statutory records; and whether the reduced penalty under Rule 13 of the Cenvat Credit Rules, 2002 required interference.

Analysis: The credit was taken during the relevant period but was not utilized, as the final products were cleared without payment of duty and the disputed credit was subsequently reversed before the show cause notice. In these circumstances, no question of payment of interest arose. The record also disclosed no mala fide, and the credit had been reflected with the knowledge of the jurisdictional Central Excise officers. The reduction of penalty by the Commissioner (Appeals) was therefore justified.

Conclusion: Interest under Section 11AB was not payable, and the reduced penalty under Rule 13 of the Cenvat Credit Rules, 2002 was sustained in favour of the assessee.

Final Conclusion: The revenue's challenge to the order of the Commissioner (Appeals) failed, and the relief granted to the assessee was maintained.

Ratio Decidendi: Where inadmissible Cenvat credit is reversed before issuance of the show cause notice and remains unutilized, interest is not exigible; in the absence of mala fide, a reduced penalty may be upheld.

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