Cenvat credit reversed before utilisation treated as non-availment, eliminating interest liability but leaving penalty intact

Wrongly availed Cenvat credit, when reversed before utilisation, is treated as if no credit had been taken, so the conditions for recovery of interest are not attracted and interest is not payable. The article also notes that a penalty for contravention of the rules was sustained on the facts recorded. The practical effect is that pre-utilisation reversal protects the assessee from interest liability, but does not automatically eliminate penalty exposure where rule violation is found.

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Issues: (i) Whether interest was payable on Cenvat credit wrongly availed but reversed before utilisation; (ii) Whether penalty was sustainable for contravention of the rules.

Issue (i): Whether interest was payable on Cenvat credit wrongly availed but reversed before utilisation.

Analysis: The credit had been taken but not utilised and was reversed before issuance of the show cause notice. The Tribunal followed the view that reversal before utilisation is treated as non-availment of credit, so the conditions for recovery of interest on wrong availment or utilisation were not attracted.

Conclusion: Interest was not payable and the demand was unsustainable.

Issue (ii): Whether penalty was sustainable for contravention of the rules.

Analysis: The Tribunal noted that the penalty was imposed for violation of the rules and found that such penalty was warranted on the facts recorded.

Conclusion: The penalty was sustained.

Final Conclusion: The appeal succeeded only to the extent of deletion of the interest demand, while the penalty was maintained.

Ratio Decidendi: Where wrongly taken Cenvat credit is reversed before it is utilised, it is treated as no credit having been taken and interest under the recovery provisions is not payable.

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