Cenvat credit penalty and interest limits: admissible credit bars penalty, and a dropped interest demand cannot be revived on appeal.

Penalty is not warranted where the Cenvat credit itself is otherwise admissible and the dispute over credit is not contested; the note states that the credit related to inputs used to manufacture and install a furnace treated as capital goods, so penalty was set aside. Interest cannot be revived in appeal where the adjudicating authority had expressly dropped the interest demand and the Revenue filed no appeal, because that part of the order had attained finality. The note also records that the voluntarily paid credit demand remained undisturbed, while relief was granted from penalty and the appellate interest demand was set aside.

---

---

Issues: (i) Whether penalty was sustainable where the Cenvat credit dispute itself was not contested and the underlying credit was otherwise admissible; (ii) Whether interest could be demanded in appeal when the adjudicating authority had dropped the interest demand and no appeal had been filed by the Revenue.

Issue (i): Whether penalty was sustainable where the Cenvat credit dispute itself was not contested and the underlying credit was otherwise admissible.

Analysis: The disputed credit related to inputs used in the manufacture and installation of a furnace within the factory. The furnace was treated as capital goods, and the inputs used for its manufacture were covered by the applicable exemption framework. The credit, though paid by the assessee without contest, was held to be otherwise admissible. In such circumstances, imposition of penalty was found unjustified.

Conclusion: Penalty was set aside.

Issue (ii): Whether interest could be demanded in appeal when the adjudicating authority had dropped the interest demand and no appeal had been filed by the Revenue.

Analysis: The adjudicating authority had expressly dropped the interest demand. That portion of the order had attained finality because the Revenue had not challenged it. The appellate authority, therefore, had no basis to reintroduce interest in the assessee's appeal for waiver of penalty.

Conclusion: The interest demand was dropped.

Final Conclusion: The credit demand, having been voluntarily paid and not contested, remained undisturbed, but the assessee obtained relief from penalty and the appellate interest demand was set aside.

Ratio Decidendi: Where the credit itself is not contested and is otherwise admissible, penalty is not warranted, and an appellate authority cannot revive a dropped interest demand that has attained finality in the absence of a Revenue appeal.

---