Cenvat credit reversal and utilisation: penalty was unsustainable after detection, but interest remained payable on utilised credit.

Penalty on inadmissible Cenvat credit may not survive where the assessee reverses the credit on detection, as the penal consequence under Rule 13 is not justified on those facts. Interest remains payable where the inadmissible credit was actually taken and utilised for a period, because utilisation triggers the interest liability notwithstanding later reversal. The assessee therefore obtained relief on penalty, but not on interest.

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Issues: (i) Whether penalty was sustainable on inadmissible Cenvat credit reversed by the assessee; (ii) Whether interest was payable on the credit taken and utilised.

Issue (i): Whether penalty was sustainable on inadmissible Cenvat credit reversed by the assessee.

Analysis: The credit was taken on capital goods and inputs used within the factory premises and was later reversed on being pointed out. The assessee did not challenge the reversal confirmed by the adjudicating authority, but the record showed that the credit entry itself was disputed only on the question of admissibility. On these facts, the penalty imposed under Rule 13 could not be sustained.

Conclusion: The penalty was set aside and the issue was decided in favour of the assessee.

Issue (ii): Whether interest was payable on the credit taken and utilised.

Analysis: The material on record showed that the assessee had utilised the credit for some period. Since the reversal was not challenged and utilisation had in fact occurred, the liability to pay interest arose on the inadmissible credit amount.

Conclusion: The interest liability was upheld and the issue was decided against the assessee.

Final Conclusion: The appeal succeeded only on the penalty aspect and failed on the interest aspect, resulting in a partial relief to the assessee.

Ratio Decidendi: Penalty on inadmissible Cenvat credit may not survive where the credit is reversed on detection, but interest remains payable where the credit was actually utilised.

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