Cenvat credit interest and penalty: reversal before utilisation bars interest, but fraudulent invoice-based credit still attracts penalty.

Under Rule 14 of the Cenvat Credit Rules, 2004, interest was held not recoverable where wrongly availed credit had been reversed before utilisation, because the condition of wrongful taking and utilisation was not satisfied. The demand of interest was set aside. Penalty was sustained, however, because the record showed fraudulent availment of credit on invoices without receipt of goods, and the admitted arrangement supported penal consequences despite reversal of the credit. The legal position stated is that reversal before utilisation may defeat interest liability, but does not protect an assessee from penalty where the availment itself was fraudulent.

---

---

Issues: (i) whether interest was recoverable on wrongly availed Cenvat credit that had been reversed before utilisation; and (ii) whether penalty on the assessee company and its director was sustainable for fraudulent availment of credit on invoices without receipt of goods.

Issue (i): whether interest was recoverable on wrongly availed Cenvat credit that had been reversed before utilisation?

Analysis: Rule 14 of the Cenvat Credit Rules, 2004, as applied to the facts, fastens recovery of interest where credit has been taken and utilised wrongly or has been erroneously refunded. The credit in question was admitted to have been wrongly taken, but it was not utilised before reversal. On that footing, the condition for levy of interest was not satisfied.

Conclusion: Interest was not recoverable and the demand of interest was set aside.

Issue (ii): whether penalty on the assessee company and its director was sustainable for fraudulent availment of credit on invoices without receipt of goods?

Analysis: The material on record showed admitted availment of credit without receipt of goods and a conscious arrangement involving invoices alone. The conduct was treated as fraudulent and not a case calling for leniency. The factual admission was sufficient to sustain penal consequences despite reversal of credit.

Conclusion: Penalty on the assessee company and the director was sustained.

Final Conclusion: The appeal succeeded only to the extent of deletion of interest, while the penal liabilities were maintained.

Ratio Decidendi: Under Rule 14 of the Cenvat Credit Rules, 2004, interest is recoverable only when wrongly taken credit has also been utilised, whereas fraudulent availment without receipt of goods can still attract penalty.

---