Wrong Cenvat credit utilisation sustains interest, but brief technical breach may justify waiver of penalty.

Interest was sustained where duty was treated as unpaid because Cenvat credit had been utilised beyond the available balance, making the clearance effectively without valid duty payment. The wrong utilisation was treated as sufficient to justify the interest demand, which remained undisturbed. Penalty was waived because the excess utilisation was for a very short period, close to the introduction of the relevant credit restriction, and the contravention was considered technical and disproportionate on the facts. The appeal therefore succeeded only on the penalty issue, while the interest liability was upheld.

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Issues: (i) Whether interest was leviable on the duty paid through excess utilisation of Cenvat credit contrary to the proviso to Rule 57AB(I); (ii) Whether penalty was warranted for the short period of wrong utilisation of credit.

Issue (i): Whether interest was leviable on the duty paid through excess utilisation of Cenvat credit contrary to the proviso to Rule 57AB(I).

Analysis: The goods were treated as having been cleared without payment of duty because the credit was utilised beyond what was available for the relevant fortnight. The adjudicating authority also invoked Rule 49(1)(e)(ii) for that purpose. Since the levy of interest was not successfully assailed and the clearance was regarded as not having been made against valid duty payment, the interest demand was sustained.

Conclusion: Interest was rightly levied and is upheld.

Issue (ii): Whether penalty was warranted for the short period of wrong utilisation of credit.

Analysis: The wrong utilisation was of very short duration, and the period for payment of duty in the present case was close to the introduction of the relevant credit restriction. In these circumstances, penalty was considered unnecessary and disproportionate.

Conclusion: Penalty was not warranted and is set aside.

Final Conclusion: The appeal succeeded only on the penalty issue, while the interest demand remained undisturbed, leaving the assessee partly successful.

Ratio Decidendi: Where duty is treated as unpaid because credit was wrongly utilised, interest can be sustained, but penalty may be waived if the contravention is of a brief and technical nature on the facts.

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