Cenvat credit interest recovery fails where inputs were received lawfully and later destroyed after being found sub-standard.

Interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act was held not recoverable where credit on received inputs was initially taken lawfully and the goods were later found sub-standard, destroyed, and the credit was reversed after receipt. The operative reason was that the credit could not be treated as wrongly taken merely because the inputs were ultimately not used in manufacture. In the absence of a factual basis showing wrongful availment of credit for interest purposes, the demand for interest could not be sustained.

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Issues: Whether interest was recoverable under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944, when credit availed on inputs later found to be sub-standard was reversed after receipt.

Analysis: Rule 14 permits recovery of Cenvat credit where it has been taken or utilised wrongly, along with interest. The inputs in question were received and credit was taken at that stage, but the goods were later found to be of poor quality and were destroyed. In those circumstances, the credit could not be treated as wrongly taken merely because the inputs were ultimately not used in manufacture. The factual basis for treating the credit as inadmissible for the purpose of interest recovery was therefore absent.

Conclusion: Interest was not recoverable and the demand could not be sustained; the assessee succeeds on this issue.

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