CENVAT credit reversed before utilisation and tax paid with interest before notice did not justify interest or penalty.

Irregular CENVAT credit reversed before utilisation did not attract interest or penalty because the credit was never enjoyed in the interim. On the related service tax issue, payment of tax with interest before issuance of the show cause notice meant penalty under Section 78 of the Finance Act, 1994 was not justified. Applying settled precedent, the demand for interest and penalty was treated as unsustainable and the impugned order was set aside in favour of the appellant.

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Issues: Whether interest and penalty were payable on CENVAT credit reversed before utilisation and on service tax paid with interest before issuance of the show cause notice.

Analysis: The reversal of irregular CENVAT credit before its utilisation attracted no liability for interest or penalty, as the credit was not enjoyed in the interim. The service tax relating to manpower supply service, having been paid along with interest before the show cause notice, did not justify penalty under Section 78 of the Finance Act, 1994. The issue was treated as settled by precedent and the demand for interest and penalty was held to be unsustainable.

Conclusion: Interest and penalty were not leviable, and the impugned order was set aside in favour of the appellant.

Ratio Decidendi: Where irregular CENVAT credit is reversed before utilisation, no interest or penalty is payable, and penalty for tax already paid with interest before show cause notice is not sustainable.

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