Pre-notice reversal of CENVAT credit defeats demand and penalty on the facts considered.

CENVAT credit reversed before issuance of the show cause notice could not support recovery or penalty on the stated facts. The analysis applied precedents recognising that, once the disputed credit stood reversed pre-notice, there was no sustainable basis for a demand or penal action. The demand and penalty were therefore treated as unsustainable.

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Issues: Whether the demand and penalty could be sustained when the assessee reversed the CENVAT credit before issuance of the show cause notice.

Analysis: The assessee had reversed the disputed amount before the show cause notice was issued. In such a situation, the Department ought not to have issued the notice for recovery and penalty. The reasoning applied the cited precedents on pre-notice reversal of credit and the absence of a sustainable basis for penalty once the amount stood reversed before notice.

Conclusion: The demand and penalty were held unsustainable, and the appeal was allowed.

Ratio Decidendi: Where CENVAT credit is reversed before issuance of the show cause notice, the resulting demand and penal action are not sustainable on the facts of the case.

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