CENVAT credit reversal: interest and penalty cannot survive without confirmation of the underlying demand.

Interest and penalty on disputed CENVAT credit reversal were found unsustainable where the underlying credit demand was neither appropriated nor confirmed. The Tribunal followed its earlier view that consequential levies cannot survive in the absence of a legally sustained principal demand. Although the assessee had reversed the credit during audit, the adjudication ended only with interest and penalty, without confirmation of the basic denial of credit. On that footing, the Tribunal set aside the interest and penalty, holding that such levies have no independent basis when the principal demand is not upheld.

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Issues: Whether interest and penalty could be sustained when no demand was appropriated or confirmed in respect of the disputed cenvat credit reversal.

Analysis: The appellant had reversed the cenvat credit on being pointed out during audit, but the proceedings culminated only in a demand of interest and penalty without any appropriation or confirmation of the underlying credit demand. The Tribunal followed its earlier view that interest and penalty cannot be imposed in the absence of a legally sustained demand on the principal amount. Since the adjudication did not confirm the basic demand arising from denial of credit, the consequential levy of interest and penalty lacked support.

Conclusion: Interest and penalty were held unsustainable and were set aside in favour of the assessee.

Ratio Decidendi: Interest and penalty cannot be imposed when the underlying demand has not been appropriated or confirmed.

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