CENVAT credit reversed before utilisation does not attract interest or penalty where no duty payment use is shown.

Wrongly availed CENVAT credit that was reversed before utilisation did not attract recovery of interest or penalty, because the disputed credit had not been used for payment of duty and the closing balance in the CENVAT account remained higher than the credit in question. Rule 14 of the CENVAT Credit Rules, as amended, applies where credit is wrongly taken and utilised; on the facts recorded, that condition was not met. Recovery of interest and penalty was therefore held unsustainable, and relief was granted to the assessee.

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Issues: Whether CENVAT credit reversed before utilisation could be recovered with interest and penalty under Rule 14 of the CENVAT Credit Rules, 2004, and the Central Excise Act, 1944.

Analysis: The credit taken in relation to trading activity had been reversed before utilisation, and the closing balance in the CENVAT account remained higher than the amount of credit wrongly availed. Rule 14, as amended by Notification No. 8/2012-CE dated 17/03/2012, applies where credit is wrongly taken and utilised, while the material on record showed that the disputed credit was not utilised. In these circumstances, the rationale that interest and penalty follow only upon utilisation of wrongly availed credit governed the dispute.

Conclusion: Recovery of interest and penalty was not sustainable. The appeal was allowed and the impugned order was set aside in favour of the assessee.

Final Conclusion: Wrongly availed CENVAT credit that is reversed before utilisation does not attract recovery of interest and penalty on the facts found.

Ratio Decidendi: Where wrongly availed CENVAT credit is reversed before utilisation, and the credit is not used for payment of duty, interest and penalty are not payable under the recovery provisions.

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