Cenvat credit reversal within the permitted period attracts no interest, and refund of interest paid is admissible.

Rule 4(5)(a) of the Cenvat Credit Rules, 2002 permits capital goods to be sent to a job worker for processing while credit remains available. Where the capital goods were sent on 31-03-2004 and the credit was reversed on 26-07-2004, the reversal fell within the 180-day period contemplated by the rule. On that basis, no interest liability arose on the delayed reversal, and refund of interest already paid was properly admissible.

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Issues: Whether interest was payable on reversal of Cenvat credit in respect of capital goods sent to job workers, and whether refund of the interest paid was admissible.

Analysis: Rule 4(5)(a) of the Cenvat Credit Rules, 2002 permits capital goods to be sent to a job worker for processing or other specified purposes while credit remains available. The capital goods were sent out on 31-03-2004 and the credit was reversed on 26-07-2004, which was within the 180-day period contemplated by the rule. The circular relied upon also recognized that capital goods may be sent to the job worker's premises for production of goods under the rule. In these circumstances, no interest liability arose on the delayed reversal.

Conclusion: The refund of interest was correctly allowed and the challenge by Revenue fails.

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