CENVAT credit on boiler components and no interest or penalty where unutilised credit is reversed before adjudication.

CENVAT credit was admissible on erection and commissioning of VFD panels forming part of a boiler used in manufacture, because the panels were treated as components of eligible machinery and the departmental circular supported credit availability. Interest and penalty did not survive where the disputed credit was only availed in the books, was not utilised, and was reversed before adjudication. The appeal therefore succeeded and the disallowance, together with the consequential interest and penalty demand, was set aside.

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Issues: (i) Whether CENVAT credit was admissible on erection and commissioning of VFD panels in boiler; (ii) Whether interest and penalty were payable where the credit was availed but not utilised and was subsequently reversed.

Issue (i): Whether CENVAT credit was admissible on erection and commissioning of VFD panels in boiler.

Analysis: The credit related to erection and commissioning of three VFD panels installed in a boiler. The boiler was used in the manufacture of the final product, and the panels formed part of the boiler. In light of the relevant CENVAT credit framework and the departmental circular clarifying admissibility for parts of boiler, the denial of credit was not sustainable.

Conclusion: The credit of Rs. 13,378/- on the VFD panels was admissible and the disallowance was set aside.

Issue (ii): Whether interest and penalty were payable where the credit was availed but not utilised and was subsequently reversed.

Analysis: The assessee reversed the disputed credit before the adjudication order. The account statement showed sufficient balance, indicating that the credit had been availed in the books but not utilised. In such circumstances, and applying the principle that interest is not leviable on credit that is only availed and not utilised and is later reversed, the demand for interest and the consequential penalty could not survive.

Conclusion: Interest and penalty were not payable on the reversed but unutilised credit.

Final Conclusion: The appeal succeeded in full and the impugned order was set aside.

Ratio Decidendi: CENVAT credit is admissible for components forming part of machinery used in manufacture, and no interest or penalty is leviable where wrongly availed credit is not utilised and is reversed before final adjudication.

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