1% interest penalty when cenvat credit reversed without utilising

[P Ovhal]

Dear Expert,

We are manufacturer of exciseble goods. We have taken CENVAT credit on our Input services consumed in manufacturing process. But still we have not utilized that CENVAT credit since 2006. One of part of our Input service is not covered as an input service. We have reversed CENVAT credit as per asked by the Auditor. But they also asked to 1% penalty on reversed CENVAT credit. Please suggest me rule/Notification on which basis Auditor has asked to us for pay 1% penalty in above condition.

regards,

Provhal

AI Summary

Reversal of CENVAT credit: penalty exposure depends on whether credit was utilised and on timing of statutory amendments.
Whether a one percent monthly penalty applies when CENVAT credit on input services is reversed without having been utilised hinges on the distinction between credit "taken" and credit "taken and utilised." Rule 14 of the Cenvat Credit Rules and cross referenced statutory recovery and interest provisions govern recovery; amendments inserting "taken and utilised" limit interest exposure for reversals after the amendment. No clear service tax provision prescribes a flat one percent monthly penalty for reversing unused credit, though certain central excise return-payment rules impose a one percent monthly charge for declared but unpaid duty.