Reversal of wrongly availed Cenvat credit before use bars interest and penalty where credit was never utilised

Wrongly availed Cenvat credit was reversed on the assessee's own intimation before utilisation and before issuance of the show-cause notice, and the reversal was not disputed. On that factual basis, mere availment of credit did not by itself justify interest when the credit had not been used for payment of duty. As the extended limitation basis for the duty demand did not survive, the related penalty also could not be sustained. Interest and penalty were therefore not leviable.

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Issues: Whether interest and penalty were leviable where wrongly availed Cenvat credit was reversed before utilisation and before issuance of show-cause notice.

Analysis: The credit was reversed on the assessee's own intimation before utilisation, and the factual position of reversal was not disputed. The demand of interest proceeded on the basis that mere availment of credit attracted liability, but the reasoning accepted that the credit had not been used for payment of duty. In these circumstances, the extended limitation basis for the duty demand did not survive, and the levy of interest and penalty could not be sustained.

Conclusion: Interest and penalty were held not leviable, and the assessee succeeded on this issue.

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