Cenvat credit reversal before notice defeats penalty, while interest applies only to the extent of actual utilisation.
Where disputed Cenvat credit was reversed before issuance of the show cause notice, penalty under Rule 15(2) read with Section 11AC was not sustainable because the basis for penal action had ceased. Under the amended Rule 14, interest was chargeable only to the extent the wrongly taken credit had actually been utilised, and the quantum was left for verification on supporting calculation and evidence. Penalty was deleted, while interest liability survived only to the extent of actual utilisation, subject to adjudication on quantification.
Issues: (i) Whether penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act was sustainable where the disputed Cenvat credit had been reversed before issuance of the show cause notice; (ii) whether interest was payable under Rule 14 of the Cenvat Credit Rules, and if so, to what extent, after the amendment clarifying liability only on credit wrongly taken and utilized.
Issue (i): Whether penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act was sustainable where the disputed Cenvat credit had been reversed before issuance of the show cause notice.
Analysis: The finding recorded in the appellate order showed that the disputed credit had already been reversed before the show cause notice was issued. On that factual basis, the penalty could not survive, since the foundation for penal consequence was absent once the credit stood reversed prior to notice.
Conclusion: The penalty was set aside in favour of the assessee.
Issue (ii): Whether interest was payable under Rule 14 of the Cenvat Credit Rules, and if so, to what extent, after the amendment clarifying liability only on credit wrongly taken and utilized.
Analysis: The amended Rule 14 was applied to hold that interest is chargeable only to the extent the wrongly taken Cenvat credit was actually utilized. The matter of quantification was therefore required to be verified by the Adjudicating Authority on the basis of calculation and supporting evidence to be filed by the assessee.
Conclusion: Interest was held payable only to the extent of utilization, subject to verification and quantification.
Final Conclusion: The appeal succeeded on the principal relief of deletion of penalty, while interest liability was confined to the extent of actual utilization and left for verification by the Adjudicating Authority.
Ratio Decidendi: Where disputed Cenvat credit is reversed before issuance of the show cause notice, penalty is not sustainable, and interest under the amended Rule 14 is chargeable only on the extent of credit actually utilized.
TaxTMI 
AI Drafter ✕
TaxTMI 
