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Issues: Whether the demand of interest and the penalty imposed for alleged wrongful availment of Cenvat credit on inputs received from a 100% EOU could be sustained when the excess credit was reversed before issuance of the show cause notice and the first audit had not objected to the availment.
Analysis: The credit was taken under Rule 3(7) of the Cenvat Credit Rules, 2004, and the notice proposed penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The record showed that the appellant had reversed the disputed credit before the show cause notice, and the first audit did not detect any irregularity. In these circumstances, the Tribunal applied the principle that the extended period could not be invoked where the Revenue had not raised an objection in the first audit and the dispute surfaced only in a later verification. On the same reasoning, when the demand itself could not be sustained for the extended period, interest and penalty also could not survive.
Conclusion: The demand of interest and the penalty were not sustainable and were set aside in favour of the assessee.
Ratio Decidendi: Where excess Cenvat credit is reversed before the show cause notice and the Revenue's first audit fails to object, the extended period of limitation is not invocable and consequential interest and penalty cannot be sustained.
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