Cenvat Credit Reversal and Interest: no interest payable where destroyed goods or unutilised credit do not trigger the statutory interest provision

Interest was held not recoverable on Cenvat credit reversed after fire damage to semi-finished goods, inputs lying as such, and capital goods not yet utilised. The ruling treats mere credit reversal, without a factual trigger bringing the case within the excise interest provisions for delayed duty payment or short levy, as insufficient to sustain an interest demand. Section 11AB was found inapplicable on the stated facts for inputs destroyed in fire, and no interest was payable on unutilised capital goods credit before reversal.

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Issues: Whether interest was payable on Cenvat credit reversed in respect of inputs contained in semi-finished goods destroyed in fire, inputs lying as such and destroyed in fire, and capital goods on which credit had been taken but not utilised before reversal.

Analysis: The relevant question was whether the demand for interest could be sustained under the excise law governing interest on delayed duty payment and Cenvat credit reversal. For inputs already issued for manufacture and embedded in semi-finished goods destroyed in fire, the credit reversal itself was treated as not giving rise to an interest liability. For inputs lying as such and destroyed in fire, Section 11AB of the Central Excise Act, 1944 was held inapplicable because it operates in cases of non-levy, short levy, or delayed payment of excise duty, and not on the facts of a mere credit reversal. For capital goods, the credit had not been utilised before reversal, and interest was not considered payable on unutilised credit.

Conclusion: The demand of interest on all three categories of credit was set aside and the assessee succeeded on the issue.

Final Conclusion: The decision confirms that interest cannot be demanded merely because Cenvat credit was reversed after destruction of goods or before utilisation, where the governing provisions for interest are not attracted on the facts.

Ratio Decidendi: Interest on Cenvat credit is not recoverable unless the facts bring the case within the statutory provision governing delayed duty payment or short levy, and unutilised or reversed credit, on the facts here, does not by itself attract such interest liability.

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