Interest on wrongly availed Modvat credit remained payable despite reversal before notice, as statutory liability survived.

Interest was payable on wrongly availed Modvat/Cenvat credit even though the assessee reversed the credit before issuance of the show cause notice. Rule 57AH treated wrongly taken or utilised credit as recoverable along with interest, and the recovery machinery under Sections 11A, 11AA and 11AB applied accordingly. Reversal before notice did not extinguish the statutory interest liability, although the provision separately distinguishes cases involving fraud, wilful misstatement, collusion, suppression or intent to evade duty for penalty consequences.

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Issues: Whether interest was payable on Modvat credit wrongly availed by the assessee even though the credit was reversed before issuance of the show cause notice.

Analysis: Rule 57AH of the Central Excise Rules, 1944 provided that where Cenvat credit is taken or utilised wrongly, the amount along with interest is recoverable and the recovery machinery under Sections 11A, 11AA and 11AB of the Central Excise Act, 1944 applies mutatis mutandis. The fact that the assessee reversed the wrongly availed credit before the show cause notice did not, by itself, extinguish the statutory liability to pay interest. The provision distinguishes between mere recovery of wrongly availed credit and additional penalty consequences in cases involving fraud, wilful misstatement, collusion, suppression or intent to evade duty.

Conclusion: Interest was payable on the wrongly availed credit notwithstanding payment before the show cause notice, and the assessee's contention to the contrary failed.

Ratio Decidendi: Liability to pay interest on wrongly availed credit arises under the recovery provision itself and is not negated merely because the credit is reversed before issuance of the show cause notice.

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