Wrongly taken Cenvat credit attracts interest only under the applicable regime and penalty requires intent to evade duty.

Interest on wrongly taken Cenvat credit depends on the statutory regime in force. For periods before 1-4-2000, the rules did not permit interest merely because credit was wrongly taken; interest arose only when the credit was actually utilised, so no interest was payable for that earlier period. From 1-4-2000 until reversal, interest was payable under the amended framework. Penalty under Rule 173Q was linked to intent to evade duty, and the same culpable element governed the penal field under Section 11AC. As the credit was reversed when pointed out and no intent to evade was established, penalty was not sustainable.

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Issues: (i) whether interest was payable on credit wrongly taken but not utilised, and from what date; (ii) whether penalty was sustainable under the facts found.

Issue (i): whether interest was payable on credit wrongly taken but not utilised, and from what date.

Analysis: The liability to pay interest for wrongly taken Cenvat credit depended upon the statutory regime in force. Prior to 1-4-2000, the relevant rules did not provide for interest merely on taking wrong credit. Rule 57AH introduced recovery of wrongly taken or utilised credit with interest from 1-4-2000, and the Supreme Court ruling on the later rule could not be extended to periods before that date. Section 11AA applied only where short levy or non-levy of duty occurred, which in this case arose only if the wrongly taken credit was actually utilised for payment of duty. Since utilisation had not taken place during the earlier period, interest was not attracted for that period.

Conclusion: Interest was not payable for the period prior to 1-4-2000, but was payable from 1-4-2000 until reversal.

Issue (ii): whether penalty was sustainable under the facts found.

Analysis: Penalty under Rule 173Q was linked to conduct involving intent to evade duty, and Section 11AC operated in the same penal field. On the facts, the credit had been reversed when pointed out and the evidence did not establish an intention to evade duty. In the absence of such culpable intent, the penal provision could not be invoked.

Conclusion: Penalty under Rule 173Q was not sustainable.

Final Conclusion: The demand for interest was confined to the period commencing on 1-4-2000 till reversal, and the penalty was set aside, resulting in only partial success for the assessee.

Ratio Decidendi: Interest on wrongly taken Cenvat credit is payable only for the period and under the statutory regime that specifically provides for such liability, and penalty cannot be imposed absent the statutory requirement of intent to evade duty.

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