Cenvat credit reversed before utilisation escapes interest, while unsupported credit can still attract penalty for deliberate availment.

Wrongly availed Cenvat credit reversed before utilisation does not attract interest because the assessee gains no benefit and the Revenue suffers no loss on that account, so the interest demand was set aside. Credit taken without supporting documents, with none produced later, was treated as deliberate wrongful availment rather than a clerical lapse, so the statutory penalty was sustained. The result was partial relief to the assessee on interest, but the penalty component remained upheld.

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Issues: (i) whether interest is payable on Cenvat credit that was reversed before utilisation; (ii) whether penalty was sustainable for taking credit without supporting documents.

Issue (i): whether interest is payable on Cenvat credit that was reversed before utilisation

Analysis: The credit was admittedly reversed before it was utilised. The decision applied the principle that where wrongly availed credit is reversed before any benefit is taken and before utilisation, the assessee does not derive the advantage of the credit and no loss is caused to the Revenue on that count. In such circumstances, interest does not arise.

Conclusion: Interest was not payable and the demand of interest was set aside in favour of the assessee.

Issue (ii): whether penalty was sustainable for taking credit without supporting documents

Analysis: The credit was taken without producing documents and none were produced thereafter. On those facts, the conduct was treated as indicative of deliberate wrongful availment rather than a mere clerical error. The ingredients for penalty under the applicable penalty provision and the excise penalty provision were held to be present.

Conclusion: Penalty was rightly upheld against the assessee.

Final Conclusion: The appeal succeeded only on the interest component and failed on the penalty component, resulting in a partial allowance.

Ratio Decidendi: Where wrongly availed Cenvat credit is reversed before utilisation, interest is not payable; but penalty is sustainable if credit is taken without supporting documents and the circumstances show deliberate wrongful availment.

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