Reversal of wrongly availed Cenvat credit before notice defeats penalty and interest when no deliberate conduct or financial benefit is shown.

Wrongly availed Cenvat credit reversed before the show cause notice, with no evidence of deliberate or contumacious conduct, did not justify penalty. Interest was also not attracted because the credit was not utilised and no financial accommodation or delayed making good of duty was shown under the provision invoked. The earlier appellate view setting aside both demands was upheld on these facts, and the assessee succeeded on the issue.

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Issues: Whether interest and penalty were sustainable on wrong availment of Cenvat credit that was reversed before issue of the show cause notice.

Analysis: The excess credit was reversed immediately after the error was noticed and there was no material to show deliberate or dishonest availment. Penalty is not automatic merely because the statute permits it, and it is ordinarily attracted only where there is deliberate defiance of law, contumacious conduct, or conscious disregard of legal obligations. Interest under the provision invoked applies to short payment, non-payment, or erroneous refund situations involving delayed making good of duty, and in the present facts the credit was not utilised and no financial accommodation was enjoyed by the assessee. On these facts, the earlier appellate order setting aside both interest and penalty was justified.

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

Ratio Decidendi: Where wrongly availed Cenvat credit is reversed before the show cause notice and there is no evidence of deliberate or contumacious conduct or actual financial benefit, penalty and interest are not attracted.

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