Cenvat credit reversal on scrap clearance attracts interest for delay, but penalty needs statutory ingredients before imposition.

Where Cenvat credit had to be reversed on clearance of dies as scrap under Rule 3(4), failure to reverse it at the time of clearance attracted interest for the period until reversal, and the interest demand was sustained. Penalty under Section 11AC was not leviable because the statutory ingredients for its invocation were not established on the facts, and the penalty was set aside. The appeal thus succeeded only on the penalty issue, while the interest liability remained upheld.

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Issues: (i) whether interest was payable on Cenvat credit reversed on clearance of dies as scrap under Rule 3(4) of the Cenvat Credit Rules, 2002; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable.

Issue (i): whether interest was payable on Cenvat credit reversed on clearance of dies as scrap under Rule 3(4) of the Cenvat Credit Rules, 2002.

Analysis: The credit was required to be reversed at the time of clearance. The amount referred to in Rule 3(4) was treated as relatable to duty, and where such amount is reversed it is capable of being availed as credit by the recipient. On that basis, the liability to pay interest from the date of clearance till the date of reversal was upheld.

Conclusion: Interest was payable and the assessee's challenge to interest failed.

Issue (ii): whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable.

Analysis: For penalty under Section 11AC, the requisite ingredients for its invocation had to be present. On the facts, the credit was reversed when pointed out and the necessary conditions for imposition of penalty were held not to exist.

Conclusion: Penalty under Section 11AC was not leviable and was set aside.

Final Conclusion: The appeal succeeded only in relation to penalty, while the demand of interest was sustained.

Ratio Decidendi: Where Cenvat credit required to be reversed on clearance of goods is not reversed at the time of clearance, interest is payable for the period of delay, but penalty under Section 11AC can be imposed only if its statutory ingredients are established.

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