Irregular Cenvat credit: nominal penalty sustained, and interest denied where sufficient credit balance existed throughout the period.

Irregular Cenvat credit detected through internal audit and subsequently reversed was treated as warranting no interference with a nominal penalty, as the assessees had taken corrective action and separate registration of units within the same company did not compel a harsher view. Interest was held not payable on the wrong credit because the Cenvat credit account maintained sufficient balance throughout the relevant period, even though the credit was initially availed irregularly. The Revenue's challenge therefore failed on both penalty and interest, and the relief granted to the assessees was sustained.

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Issues: (i) Whether nominal penalty imposed for wrongly availed Cenvat credit, which was detected in internal audit and subsequently reversed, required interference; (ii) Whether interest was payable on wrong credit when the Cenvat credit account had sufficient balance during the relevant period.

Issue (i): Whether nominal penalty imposed for wrongly availed Cenvat credit, which was detected in internal audit and subsequently reversed, required interference.

Analysis: The irregularity was noticed by the assessees' own internal audit and corrective steps were taken by reversing and re-taking the credit in the respective units. Since both units belonged to the same company, separate registration by itself did not compel the imposition of separate penalty. The discretionary relief granted by the appellate authority was found to be justified.

Conclusion: The nominal penalty was upheld and no interference was called for.

Issue (ii): Whether interest was payable on wrong credit when the Cenvat credit account had sufficient balance during the relevant period.

Analysis: The appellate authority followed the line of decisions holding that interest is not leviable where the credit account maintained sufficient balance throughout the relevant period, even if the credit was initially taken irregularly. No error in the application of judicial discipline was found.

Conclusion: Interest was not payable.

Final Conclusion: The Revenue's challenge failed on both penalty and interest, and the order granting relief to the assessees was sustained.

Ratio Decidendi: Where irregular Cenvat credit is detected and rectified by the assessee, nominal penalty may be sustained in the exercise of discretion, and interest is not payable if the credit account continuously had sufficient balance to cover the irregular credit.

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