Pre-utilisation reversal of Cenvat credit defeats demand and interest where no utilisation or revenue loss is shown.

Reversal of Cenvat credit in the books before the GST transition, without carrying it forward as transitional credit, meant the disputed credit could not survive as an enforceable demand. The tribunal treated the pre-utilisation reversal as non-availment of credit and set aside the demand. On interest, it applied Rule 14 of the Cenvat Credit Rules, 2004 and the compensatory nature of interest, holding that interest was not payable because the credit had been reversed before utilisation and no revenue loss was established. The assessee succeeded on both demand and interest, and the penalty challenge did not survive.

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Issues: (i) Whether the demand of Rs. 11,06,691/- could survive when the disputed Cenvat credit was reversed in the books on 30.06.2017 before transition into GST. (ii) Whether interest was payable on the disputed credit under the Cenvat Credit regime.

Issue (i): Whether the demand of Rs. 11,06,691/- could survive when the disputed Cenvat credit was reversed in the books on 30.06.2017 before transition into GST.

Analysis: The disputed amount was found to have been reversed by a book entry before the GST regime commenced on 01.07.2017, and it was not carried forward as transitional credit. On that factual basis, no further reversal was required and the amount could not be treated as surviving demand.

Conclusion: The demand to the extent of Rs. 11,06,691/- was set aside in favour of the assessee.

Issue (ii): Whether interest was payable on the disputed credit under the Cenvat Credit regime.

Analysis: Interest was examined with reference to Rule 14 of the Cenvat Credit Rules, 2004 and the principle that interest is compensatory and arises only when credit is taken and utilised so as to cause withholding of tax. Since the credit was reversed before utilisation and sufficient credit balance was shown, the factual and legal basis for interest was not made out.

Conclusion: The demand of interest was set aside in favour of the assessee.

Final Conclusion: The assessee succeeded on the disputed demand and interest, while the departmental challenge to deletion of penalty did not survive.

Ratio Decidendi: Reversal of Cenvat credit before utilisation amounts to non-availment of credit, and interest is not leviable absent actual utilisation or revenue loss.

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