Prompt reversal of inadmissible Cenvat credit defeats penalty and interest, but the credit itself may still be confirmed.

Incorrect Cenvat credit on capital goods was treated as inadmissible on the facts, and the assessee's prompt reversal before the show cause notice did not prevent confirmation of the reversed credit. The dispute was viewed as one of statutory interpretation rather than deliberate evasion, so the record did not support suppression, fraud, or other wilful misconduct. On that basis, penalty and interest were not justified, while the credit reversal already made by the assessee remained confirmed.

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Issues: (i) Whether the assessee had wrongly availed Cenvat credit by claiming depreciation on the full duty component of capital goods, and whether the credit reversed by the assessee was nevertheless liable to be confirmed. (ii) Whether the facts justified invocation of suppression, fraud, penalty and interest.

Issue (i): Whether the assessee had wrongly availed Cenvat credit by claiming depreciation on the full duty component of capital goods, and whether the credit reversed by the assessee was nevertheless liable to be confirmed.

Analysis: The dispute arose from the assessee's treatment of depreciation on plant and machinery vis-a -vis the credit scheme applicable to capital goods. The record showed that the assessee had availed the balance 50% credit in subsequent years, but the amount was reversed immediately when pointed out during audit, well before issuance of the show cause notice. The Tribunal treated the reversal as curing the incorrect availment, while still recognising that the credit earlier taken was not admissible in the facts of the case.

Conclusion: The reversed Cenvat credit was upheld and confirmed.

Issue (ii): Whether the facts justified invocation of suppression, fraud, penalty and interest.

Analysis: The Tribunal found the matter to be one of statutory interpretation rather than deliberate wrongdoing. It recorded that there was no suppression, fraud, or disregard of law, and placed weight on the assessee's prompt reversal of credit at the first opportunity and much before the notice was issued. In that setting, the basis for penal consequences and interest was not made out.

Conclusion: Penalty and interest were set aside.

Final Conclusion: The assessee obtained relief from penalty and interest, while the credit reversal already made by it remained confirmed.

Ratio Decidendi: Where an incorrect Cenvat credit availment is promptly reversed before notice and the dispute is essentially interpretative, penalty and interest are not warranted in the absence of suppression or fraud, though the inadmissible credit itself may still be confirmed.

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