Cenvat credit reversal on disputed input-service admissibility does not justify penalty; interest liability was sustained

Penalty for taking Cenvat credit was not justified where the credit had been reversed and the admissibility of the input-service credit was supported by judicial decisions on the maintenance of a wind mill. The disputed nature of the credit issue meant that mere initial availment did not warrant penal action, so the penalty was set aside. Interest on the reversed credit was accepted because the demand was not pressed on merits and the assessee agreed to pay it, so the interest liability was sustained.

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Issues: (i) Whether penalty was leviable for taking Cenvat credit on input services where the credit had been reversed and the admissibility of such credit was supported by judicial decisions. (ii) Whether interest on the reversed credit was payable.

Issue (i): Whether penalty was leviable for taking Cenvat credit on input services where the credit had been reversed and the admissibility of such credit was supported by judicial decisions.

Analysis: The credit related to maintenance of a wind mill and there were decisions taking the view that such credit was admissible. In that background, the mere fact that the assessee had reversed the credit did not justify imposition of penalty. The adjudicatory finding proceeded on a disputed credit issue, and penalty was considered unwarranted.

Conclusion: Penalty was not leviable and was set aside in favour of the assessee.

Issue (ii): Whether interest on the reversed credit was payable.

Analysis: The demand for interest was not pressed on merits and the assessee agreed to make payment, the amount being small. On that basis, the interest liability was accepted.

Conclusion: The demand for interest was upheld.

Final Conclusion: The assessee succeeded on penalty, while the interest demand was sustained, resulting in a partial allowance of the appeal.

Ratio Decidendi: Where Cenvat credit is reversed in a dispute involving a view supported by judicial decisions, penalty is not justified merely because the credit was initially taken.

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