CENVAT credit reversed before utilisation does not attract interest where no fraud or suppression justifies extended limitation.

Rule 14 of the CENVAT Credit Rules, 2004 was applied to credit wrongly availed but reversed before utilisation, and interest was held not recoverable where the disputed credit was only a book entry and the assessee had sufficient accumulated credit. The absence of fraud, suppression, or deliberate conduct also meant that invocation of the extended limitation period under Section 11A of the Central Excise Act, 1944 was not sustainable. On that basis, recovery proceedings failed and the demand was held unsustainable.

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Issues: Whether interest was recoverable on CENVAT credit wrongly availed but reversed before utilisation, and whether recovery proceedings under the extended limitation period were sustainable.

Analysis: Rule 14 of the CENVAT Credit Rules, 2004 fastens recovery of wrongly taken credit together with interest, but the provision operates in the context of recovery of credit that has been wrongly taken or utilised. The assessee had a large accumulated credit balance and reversed the disputed credit immediately after the error was pointed out. The record did not disclose fraud, suppression, or any deliberate act justifying invocation of the extended period under Section 11A of the Central Excise Act, 1944. In these circumstances, the attempt to recover interest was unsupported, and the reasoning that mere erroneous book entry, without utilisation or loss to the revenue, could not sustain interest liability was accepted.

Conclusion: Interest on the disputed CENVAT credit was not recoverable, and the demand was unsustainable.

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