Interest on wrongly availed Cenvat credit sustained, but penalty waived where excess credit was treated as inadvertent.

Interest was upheld on Cenvat credit wrongly taken on capital goods in excess of the permissible 50 per cent, even though the excess credit was reversed when pointed out, because interest was treated as payable on wrongful availment. Penalty, however, was set aside as the excess credit arose soon after coal became liable to excise duty for the first time and the mistake was treated as inadvertent and unintentional. The result was that the interest demand was sustained, while the assessee obtained relief only from penalty.

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Issues: (i) Whether interest was leviable on Cenvat credit wrongly taken on capital goods but not utilised before reversal; (ii) Whether penalty was exigible for such excess availment of credit.

Issue (i): Whether interest was leviable on Cenvat credit wrongly taken on capital goods but not utilised before reversal.

Analysis: The credit was taken in excess of the permissible 50 per cent on receipt of capital goods, but the excess was reversed when pointed out. On the question of interest, the competing authorities were considered. Applying the principle that interest follows wrongful availment where credit has been taken but not utilised only in accordance with the binding precedent relied upon, the levy of interest was upheld.

Conclusion: Interest was leviable and the demand of interest was sustained, against the assessee.

Issue (ii): Whether penalty was exigible for such excess availment of credit.

Analysis: The excess availment occurred soon after coal was subjected to excise duty for the first time, and the mistake was treated as inadvertent and unintentional. In those circumstances, a lenient view was taken on penalty.

Conclusion: Penalty was not sustainable and was set aside, in favour of the assessee.

Final Conclusion: The appeal succeeded only in relation to penalty, while the interest demand on wrongly availed Cenvat credit was maintained.

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