Cenvat credit interest not leviable where credit was validly taken on receipt and wrongful availment was not shown.

Interest under the Cenvat Credit recovery provisions was not chargeable where capital goods were received in the factory and credit was validly taken on receipt, even though the credit was later reversed after shortage was detected. Rule 12 of the Cenvat Credit Rules, 2002 applies only when credit has been taken or utilised wrongly, and the Revenue did not establish any wrongful availment or non-receipt of goods. The same reasoning applied to Rule 14 of the Cenvat Credit Rules, 2004, which follows an identical scheme, and Section 11AB of the Central Excise Act could not sustain an interest demand once the recovery provisions were inapplicable. The interest demand was therefore unsustainable.

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Issues: Whether interest was payable under Rule 12 of the Cenvat Credit Rules, 2002 and Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 when the capital goods were received in the factory, credit was initially taken and utilised, and the credit was later reversed on detection of shortage.

Analysis: The liability to recover interest under Rule 12 arises only when Cenvat credit has been taken or utilised wrongly. On the admitted facts, the capital goods had been received in the factory and the credit had been validly taken at the time of receipt. The Revenue did not establish that the goods had never been received or that the credit was otherwise wrongly availed or utilised. In those circumstances, Rule 12 was not attracted. Since Rule 14 contains an identical scheme, the same conclusion applied there as well. Once the recovery provisions under Rule 12 or Rule 14 were inapplicable, there was no occasion to sustain interest under Section 11AB.

Conclusion: Interest was not recoverable under Rule 12 or Rule 14, and the demand of interest was unsustainable.

Final Conclusion: The assessee succeeded, and the interest demand was set aside.

Ratio Decidendi: Interest under the Cenvat Credit recovery provisions is chargeable only where credit has been taken or utilised wrongly; where credit was validly taken on receipt of goods and wrongful availment is not established, interest cannot be levied.

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