Interest on wrongly availed Cenvat credit was not payable where the credit was reversed before utilisation, and penalty failed.

Interest under Section 11AB was held to be compensatory and payable only when duty remains unpaid or wrongly withheld. Where Cenvat credit was wrongly availed but reversed before utilisation, mere wrongful availment did not create a continuing liability to interest. On that basis, the related penalty also could not survive, and the assessee succeeded.

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Issues: Whether interest was payable on Cenvat credit that had been wrongly availed but subsequently reversed before its utilization, and whether the penalty based on such demand could survive.

Analysis: The appeal concerned only the demand of interest on credit already reversed by the assessee. The relevant legal position was taken from the Karnataka High Court decision in Bill Forge and the subsequent affirmation in Gokaldas Images, both of which treated interest as compensatory and linked it to actual withholding of duty. On that principle, mere wrong availment of credit, without a subsisting liability arising from its utilization, does not by itself justify interest. Since the credit had been reversed, the basis for the interest demand and the connected penalty was not made out.

Conclusion: Interest was not payable on the credit already reversed, and the rejection of the demand was sustained in favour of the assessee.

Final Conclusion: The Revenue's challenge failed, and the order setting aside the interest and penalty was affirmed.

Ratio Decidendi: Interest under Section 11AB is compensatory and is attracted only when duty has remained unpaid or has been wrongly withheld; it cannot be levied merely because Cenvat credit was wrongly taken if that credit was reversed before utilization.

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