Cenvat credit interest and penalties: utilisation before reversal attracts interest, while disclosed facts negate suppression-based penalty.

Interest was held payable on irregularly availed cenvat credit for the period it was actually utilised until reversal, and prior reversal before the show-cause notice did not wipe out that liability. Penalties under Section 11AC and equivalent provisions requiring suppression with intent to evade duty were not sustainable where the relevant facts had been disclosed in statutory returns and records, so suppression was not proved. A separate penalty for mere irregular availment of inadmissible cenvat credit simpliciter was nevertheless upheld on the facts.

---

---

Issues: (i) whether interest was payable on cenvat credit irregularly availed and utilized from the date of utilization till the date of reversal; (ii) whether the penalty under Section 11AC and the equivalent penal provisions for suppression with intent to evade duty was sustainable; (iii) whether the penalty for irregular availment of inadmissible cenvat credit simpliciter was sustainable.

Issue (i): whether interest was payable on cenvat credit irregularly availed and utilized from the date of utilization till the date of reversal.

Analysis: The credit had been reversed before the show-cause notice, but the reversal did not erase liability to interest. The relevant question was not whether the credit was later reversed, but whether the credit had been utilized in the interregnum. On the materials before it, the Court found no factual basis to accept the plea that no utilization had taken place. Interest was therefore confined to the period from utilization to reversal, and the quantification was left to be made after giving an opportunity of hearing.

Conclusion: Interest was held payable from the date of utilization till the date of reversal, and the assessee did not succeed on this issue.

Issue (ii): whether the penalty under Section 11AC and the equivalent penal provisions for suppression with intent to evade duty was sustainable.

Analysis: The Court held that the essential ingredients for such a penalty were not established. The relevant material facts had been disclosed through statutory returns and accompanying records, including the identification of the goods on which credit was taken. The Department had the opportunity to verify those returns, and the assessee could not be penalized for the absence of further inquiry by the departmental officer. Since suppression with intent to evade duty was not proved, the basis for the higher penalty failed.

Conclusion: The penalty based on suppression of facts and intent to evade duty was set aside in favour of the assessee.

Issue (iii): whether the penalty for irregular availment of inadmissible cenvat credit simpliciter was sustainable.

Analysis: The Court distinguished this penalty from the higher penalty predicated on suppression. Even though suppression was not established, the availment of inadmissible cenvat credit itself remained. On that footing, the limited penalty was held to be justified on the facts of the case.

Conclusion: The penalty for irregular availment simpliciter was upheld against the assessee.

Final Conclusion: The order was sustained in substance, except that the penalty founded on suppression and intent to evade duty was annulled, while interest liability and the lesser penalty were maintained.

Ratio Decidendi: Disclosure of material facts in statutory returns negates suppression for the purpose of penal provisions requiring intent to evade duty, but interest remains payable on wrongly availed credit for the period it is utilized before reversal, and a lesser penalty may still survive for mere irregular availment.

---