Cenvat credit reversal before utilisation: no interest liability and extended limitation cannot be invoked without suppression.

Wrongly availed Cenvat credit reversed before utilisation does not attract interest under Rule 14 of the Cenvat Credit Rules, 2004, because reversal before use is treated as if the credit was not taken. The reversal made before departmental audit was therefore held insufficient to create interest liability. The notice was also held time-barred, as the extended limitation period under Section 73 of the Central Excise Act, 1944 required suppression or intent to evade, which was not shown where the credit had been voluntarily reversed before utilisation. The demand was set aside and the assessee succeeded.

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Issues: (i) Whether wrongly availed Cenvat credit, reversed before departmental audit and before utilisation, could still attract interest. (ii) Whether the show cause notice was barred by limitation and whether the extended period could be invoked.

Issue (i): Whether wrongly availed Cenvat credit, reversed before departmental audit and before utilisation, could still attract interest.

Analysis: Interest under Rule 14 of the Cenvat Credit Rules, 2004 is attracted only where the wrongly availed credit has also been utilised. Where the credit is reversed before utilisation, the situation is treated as if credit was not taken. The reversal in this case had been made before the audit and therefore could not be treated as involuntary or as giving rise to interest liability.

Conclusion: The demand of interest was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the show cause notice was barred by limitation and whether the extended period could be invoked.

Analysis: The notice was issued beyond the normal limitation period. The extended period under Section 73 of the Central Excise Act, 1944 could be invoked only on a showing of suppression or intent to evade. Since the credit had been reversed voluntarily before utilisation and no mens rea to evade duty or interest was made out, the extended period was not available.

Conclusion: The demand was time-barred and the invocation of the extended period was rejected in favour of the assessee.

Final Conclusion: The order confirming recovery of the reversed credit and interest was set aside and the appeal succeeded.

Ratio Decidendi: Wrongly availed Cenvat credit reversed before utilisation does not give rise to interest liability, and in the absence of suppression or intent to evade, the extended period of limitation cannot be invoked.

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