Reversal of inadmissible credit before utilisation avoids interest liability and defeats penalty based on that demand.

Inadmissible credit reversed before utilisation does not attract interest, as no actual use of the credit occurs; the Tribunal followed its earlier view despite conflicting precedents. The appellant's later payment of interest was not treated as an admission of liability. Penalty could not survive because it was founded only on the disputed interest demand. The demand of interest and penalty was therefore set aside, with consequential relief granted.

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Issues: Whether interest was payable on reversal of credit that had been taken but not utilised, and whether penalty could survive in such circumstances.

Analysis: The credit was reversed after audit before utilisation. Conflicting precedents on interest liability were noticed, but the Tribunal followed its own earlier view that where inadmissible credit is reversed without utilisation, no interest is payable. The subsequent payment of interest by the appellant was not treated as an admission of liability warranting a different result.

Conclusion: Interest was not payable on the reversed but unutilised credit, and penalty could not be sustained.

Final Conclusion: The demand of interest and the penalty were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Where inadmissible credit is reversed before utilisation, no interest liability arises, and penalty based solely on such non-payable interest cannot be sustained.

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