Court upholds Cenvat credit demand, sets aside interest charge, and upholds penalty under Section 11AC.

The court upheld the demand for Cenvat credit but set aside the interest demand, ruling that interest could not be charged as the credit was wrongly taken but not utilized until reversal. The penalty under Section 11AC was upheld, citing suppression of facts and the inadmissibility of reducing or waiving the penalty even if the amount is paid before the show cause notice. The appellant's appeal was partially allowed, modifying the impugned order accordingly.

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Issues:
1. Availing Cenvat credit on common input services used for both exempted and dutiable final products.
2. Contention regarding demand of interest and imposition of equal penalty under Section 11AC.
3. Interpretation of Rule 14 for recovery of Cenvat credit wrongly taken but not utilized.

Analysis:
1. The appellant had two divisions, one availing exemption under Notification No. 30/2004-CE while utilizing Cenvat credit on common input services for both divisions. The department contended that as the credit was used in both dutiable and exempted products, proportionate credit for exempted products is inadmissible, leading to a confirmed demand with interest and penalty.

2. The appellant, through their counsel, did not contest the demand payment made after receiving the show cause notice. They contested the interest demand and equal penalty imposition under Section 11AC. The appellant argued that as they did not utilize the Cenvat credit, it remained unutilized in their account, indicating no malafide intent to warrant penalty imposition. They also highlighted that since the demanded credit was not utilized, interest under Rule 14 should not apply.

3. The Revenue representative reiterated the findings of the impugned order, emphasizing the penalty imposition due to the extended period of demand and alleged suppression of facts. However, after considering both sides and reviewing the record, the judge upheld the demand for Cenvat credit. Regarding the penalty, the judge referred to the decision in UOI vs. Dharamendra Textile Processors, stating that even if the amount is paid before the show cause notice, the penalty cannot be reduced or waived if there is suppression of facts. The judge also analyzed Rule 14, clarifying that interest can only be charged when Cenvat credit is both wrongly taken and utilized. Since the appellant had availed but not utilized the credit until reversal, interest was deemed not chargeable, leading to the setting aside of the interest demand.

In conclusion, the impugned order was modified to reflect the above analysis, partially allowing the appeal.

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