CENVAT credit eligibility bars interest and penalty where the disputed credit is found to be correctly availed.

Interest and penalty under the CENVAT Credit Rules, 2004 were held not to be sustainable where the disputed credit was legally eligible and correctly availed. The Tribunal noted that the Commissioner had examined the credit eligibility within the scope of the show-cause notice and, relying on precedent on credit distribution and utilisation, accepted that the respondent was entitled to the credit. As the credit was found in order, the demand for interest and the proposal for penalty failed, and the order dropping the proceedings was upheld.

---

---

Issues: Whether interest and penalty were leviable under the CENVAT Credit Rules, 2004 when the disputed credit was held to be eligible and the demand proceedings were dropped.

Analysis: The Tribunal noted that the Commissioner had not travelled beyond the show-cause notice and had examined the eligibility of the credit availed by the respondent. Relying on the view that interest and penalty do not arise where the credit availed is in order, and following the cited precedent on credit distribution and utilisation, it held that the respondent was entitled to the credit. On that basis, the demand of interest and the proposal for penalty could not be sustained.

Conclusion: The demand of interest and penalty was not sustainable, and the Commissioner's order dropping the proceedings was upheld.

Final Conclusion: The appeal filed by the Revenue failed, and the relief granted to the respondent was maintained.

Ratio Decidendi: Interest and penalty under the CENVAT credit regime are not attracted where the credit availed is legally eligible and correctly availed.

---