Wrongly availed Cenvat credit attracts pre-amendment interest and penalty where trading activity was knowingly ignored.

For the period before 1 April 2012, interest was payable on wrongly availed Cenvat credit relating to trading activity even if the credit had not been utilised. The Tribunal noted that the assessee had taken common input service credit while carrying on both manufacturing and trading activities, and that later reversal did not cure the earlier wrong availment. On penalty, the Tribunal found suppression of material facts because the credit was taken despite knowledge of the trading activity and was reversed only after audit objection; the matter was therefore not treated as a mere interpretative dispute, and penalty under Section 11AC was upheld.

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Issues: (i) Whether interest was payable on wrongly availed Cenvat credit attributable to trading activity for the period prior to 1-4-2012 even though the credit was not utilised. (ii) Whether penalty under Section 11AC was exigible on the facts of the case.

Issue (i): Whether interest was payable on wrongly availed Cenvat credit attributable to trading activity for the period prior to 1-4-2012 even though the credit was not utilised.

Analysis: The applicable rule position was that, prior to 1-4-2012, interest could be charged on wrongly availed credit even if the credit had only been taken and not utilised. The Tribunal held that the assessee had availed common input service credit despite carrying on trading activity, and the subsequent reversal did not erase the wrong availment for the earlier period.

Conclusion: Interest for the period from April 2010 to March 2012 was rightly demanded and was upheld, against the assessee.

Issue (ii): Whether penalty under Section 11AC was exigible on the facts of the case.

Analysis: The Tribunal found that the assessee knew it was engaged in both dutiable manufacture and trading activity, yet took credit on common input services. The credit was reversed only after audit objection. The Tribunal treated this as suppression of material facts, held that the issue was not a mere matter of interpretative doubt, and applied the extended limitation and penalty consequences accordingly.

Conclusion: Penalty under Section 11AC was correctly imposed and was upheld, against the assessee.

Final Conclusion: The challenge failed on both interest and penalty, and the impugned order was sustained in full.

Ratio Decidendi: Wrongly availed Cenvat credit attracts interest for the relevant pre-amendment period even if not utilised, and deliberate availment of credit on common input services in the face of known trading activity constitutes suppression warranting penalty under Section 11AC.

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