Interest on inadmissible Cenvat credit runs from availment, while penalty may fail absent mala fide and pre-notice payment.

Interest on inadmissible Cenvat credit is payable from the date of availment, even if the credit has not yet been utilised, because wrongful taking of credit itself triggers the interest liability. The penalty under Section 11AC was not sustained on the facts because the credit had been taken inadvertently, reversed and paid before the show cause notice, and no mala fide intent was established. The duty and interest demands were upheld, but the equal penalty was set aside, giving only partial relief to the assessee.

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Issues: (i) whether interest was payable on inadmissible Cenvat credit from the date of availment even though the credit had not been utilized; (ii) whether penalty under Section 11AC was sustainable when the inadmissible credit was paid before issuance of the show cause notice and no mala fide was found.

Issue (i): Whether interest was payable on inadmissible Cenvat credit from the date of availment even though the credit had not been utilized.

Analysis: The credit taken was admittedly inadmissible, and the amount was paid only after being pointed out by the department. The governing principle applied was that interest follows the wrongful availment of credit and is not postponed until utilization of the credit balance.

Conclusion: Interest was payable from the date the inadmissible credit was availed, and the interest demand was upheld.

Issue (ii): Whether penalty under Section 11AC was sustainable when the inadmissible credit was paid before issuance of the show cause notice and no mala fide was found.

Analysis: The credit had been taken inadvertently, was reversed on being pointed out, and was paid before issuance of the show cause notice. On these facts, the element of mala fide necessary for penalty was not established.

Conclusion: Penalty under Section 11AC was not sustainable and was dropped.

Final Conclusion: The duty demand and interest demand were sustained, but the equal penalty was set aside, resulting in only partial relief to the appellant.

Ratio Decidendi: Interest is payable on inadmissible Cenvat credit from the date of availment, while penalty under Section 11AC requires culpable conduct and may be waived where the credit was taken inadvertently and repaid before notice without mala fide.

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