Cenvat credit reversal before utilisation does not attract interest where goods are destroyed in a fire accident.

Interest under Rule 12 of the Cenvat Credit Rules, 2002 was not payable on credit reversed after a fire accident where inputs had been issued for manufacture and were embedded in semi-finished goods destroyed in the fire, because no reversal was required on those facts. Credit taken on capital goods but reversed before utilisation also did not attract interest, as reversal before use was treated as equivalent to credit not having been taken. The HC upheld the Tribunal's view that no interest arose on the unutilised reversed credit and rejected the Revenue's challenge.

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Issues: Whether interest was payable on Cenvat credit reversed after a fire accident, including credit relating to inputs contained in semi-finished goods and credit taken on capital goods but reversed before utilisation.

Analysis: Rule 12 of the Cenvat Credit Rules, 2002 provides for recovery, along with interest, where Cenvat credit is taken or utilised wrongly or is erroneously refunded, and the machinery provisions of Sections 11A and 11AB of the Central Excise Act, 1944 apply mutatis mutandis. However, where inputs had been issued for manufacture and were contained in semi-finished goods destroyed in the fire, the assessee was not required to reverse the credit, and interest could not arise on delayed reversal. As to credit taken on capital goods, the credit had not been utilised before reversal, and reversal prior to utilisation was treated as equivalent to not taking credit. The Tribunal's view that interest was not payable on such unutilised reversed credit was consistent with the settled principle that no interest arises where credit is reversed before it is put to use.

Conclusion: Interest was not payable on the reversed Cenvat credit in the facts of the case, and the Revenue's appeal failed.

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