Interest on unutilised Cenvat credit is not payable when the wrongly taken credit is reversed before use.

Interest under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11AB of the Central Excise Act, 1944 is attracted only where wrongly taken credit is actually utilised or otherwise causes deprivation of revenue. Section 11AB is compensatory in nature and applies to short payment, non-payment, or erroneous refund of duty, while Rule 12 extends recovery provisions to wrongly taken or wrongly utilised credit. On the stated facts, the excess credit was taken by mistake, never used for duty payment, and was reversed when pointed out; accordingly, the statutory basis for charging interest was absent and the interest demand was unsustainable.

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Issues: Whether interest was payable under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11AB of the Central Excise Act, 1944 on Cenvat credit wrongly taken but not utilized and reversed before utilization.

Analysis: Section 11AB provides for interest where duty is short-paid, not paid, or erroneously refunded, and its character is compensatory, arising from deprivation of money due. Rule 12 of the Cenvat Credit Rules, 2002 extends recovery of wrongly taken or wrongly utilized credit along with interest and applies Sections 11A and 11AB mutatis mutandis. On the facts found, the excess credit was taken by mistake, was never utilized for payment of duty, and was reversed when pointed out. Since there was no actual use of the credit and no corresponding deprivation of revenue, the statutory basis for charging interest was absent.

Conclusion: Interest was not payable on mere wrong availment of Cenvat credit that remained unutilized and was reversed; the demand of interest was unsustainable.

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