Pre-utilisation reversal of wrong Cenvat credit avoids interest and penalty where the credit was never used.

Reversal of wrongly availed Cenvat credit before its utilisation meant no compensatory interest could be levied, because interest arises only when the assessee has enjoyed the benefit of the credit or used it. On the facts stated, the credit entry was reversed promptly and was never utilised, so mere irregular booking did not trigger interest liability. For the same reason, penalty based on wrongful availment was not sustained. The operative effect is that pre-utilisation reversal of inadmissible credit negates interest and penalty where no benefit from the credit was taken.

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Issues: Whether interest and penalty were leviable where Cenvat credit was wrongly taken but reversed before utilization.

Analysis: The dispute turned on the legal effect of reversing the irregularly availed credit before it was utilized. The Tribunal applied the principle that interest is compensatory and arises when the assessee has had the benefit of the wrongly taken credit or its utilization. On the facts found, the credit entry was reversed promptly without being used, and the matter was covered by the later view that wrongful book entry alone, without utilization, does not attract interest. In the same factual setting, penalty based on wrongful availment was not sustained.

Conclusion: Interest was not payable and penalty was not sustainable, since the credit was reversed before utilization.

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