Interest on exemption reversal applies only to delayed cash payment, not to credit merely reversed from existing balance.

Where an exemption is conditional on non-availment of input credit, an assessee who opts for the exemption must first neutralise any credit already taken on inputs or capital goods. If the assessee continues clearances and later works out the reversal, interest is compensatory for delay only on the cash amount that ought to have been paid when the exemption was chosen. The credit merely reversed from the existing balance does not attract interest because it is not a delayed cash payment, even if the exact figures are settled later. Accordingly, interest is confined to the belated cash component and not to the reversed credit balance.

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Issues: Whether interest was payable for delayed reversal/payment of credit when the assessee opted for exemption under Notification No. 30/2004-C.E. and whether such interest was confined to the amount paid in cash or extended to the credit reversed.

Analysis: The exemption notification barred availment of its benefit where credit of duty on inputs or capital goods had already been taken. The assessee could not clear stock under the exemption without first neutralising the credit already taken on inputs, whether utilised or lying unutilised. Once the assessee chose to continue clearances and later worked out the exact reversal, the cash component that ought to have been paid on the date of opting for exemption was treated as having been paid belatedly, making interest compensatory for the delay. At the same time, the amount adjusted by reversal of existing credit did not attract interest merely because the working out of figures took time.

Conclusion: Interest was rightly demanded on the cash amount paid belatedly, but not on the credit reversed from the existing balance.

Ratio Decidendi: Where exemption is conditional upon non-availment of input credit, delayed compliance after opting for the exemption attracts interest only on the portion that should have been paid in cash, not on credit merely reversed from the existing balance.

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