CENVAT credit wrongly taken but not utilised does not, by itself, attract interest or penalty under Rule 14.

Under Rule 14 of the CENVAT Credit Rules, 2004, recovery of interest and penalty requires not only wrong availment of credit but its utilisation as well. The Court read the rule in light of the clarificatory amendment using the expression "taken and utilised", and held that mere taking of CENVAT credit, if reversed before use, does not by itself attract interest or penalty. On that basis, the demand was set aside and the Department's challenge failed.

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Issues: Whether interest and penalty are recoverable where CENVAT credit was wrongly taken but not utilised before reversal.

Analysis: The dispute turned on Rule 14 of the Cenvat Credit Rules, 2004. The Court treated the expression as requiring not only wrongful taking of credit but also utilisation for recovery of interest and penalty. It noted that the subsequent amendment clarifying the rule as "taken and utilised" supported the view that mere availment, without actual use, does not by itself attract interest or penalty. The decision relied on the principle that recovery provisions must be applied according to the legal effect of the rule as clarified by the amendment.

Conclusion: Interest and penalty were not leviable because the credit was only taken and had been reversed before utilisation.

Final Conclusion: The Department's challenge failed, and the order setting aside the demand was upheld.

Ratio Decidendi: Under Rule 14 of the Cenvat Credit Rules, 2004, mere wrongful taking of CENVAT credit, without utilisation, does not by itself justify recovery of interest or penalty.

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