Cenvat credit refund: no reversal obligation and no interest or penalty where sanctioned refund cheque was issued and unused credit remained intact

Refund of unutilized Cenvat credit had already been sanctioned and cheques issued, but the Revenue sought interest and penalty on the basis that the assessee should have reversed the credit on receipt of the refund order. The Tribunal held that the Cenvat Credit Rules, 2004 contained no requirement to reverse credit merely because a refund order had been passed, and no provision authorising interest for the period between issue of the cheque and its deposit in the bank. As the credit covered by the refund claim was not utilised in the meantime, the demand for interest and penalty was unsustainable.

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Issues: Whether interest and penalty could be demanded for delayed deposit of refund cheque on the premise that the assessee had not reversed the Cenvat credit lying in balance.

Analysis: The refund of unutilized Cenvat credit had been sanctioned and the cheques were issued, but the Revenue sought interest and penalty on the footing that reversal of credit ought to have been made on receipt of the refund sanction order. The Tribunal found no provision in the Cenvat Credit Rules, 2004 requiring reversal of the credit merely because a refund order had been passed, and no provision authorising interest for the period between issue of the cheque and its deposit in the bank. It was also noted that the credit covered by the refund claim had not been utilized in the interregnum.

Conclusion: The demand of interest and penalty was not sustainable, and the appeal succeeded.

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