CESTAT Delhi Sets Aside ₹1 Crore Interest, Penalty On Hindustan Zinc For Reversed CENVAT Credit
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside disallowance of CENVAT credit along with interest and penalty amounting to nearly ₹1 crore that had been imposed on Hindustan Zinc Ltd. for electricity wheeled to its sister concerns as well as supplied to the State Electricity Board. The Tribunal, in its order dated November 24, 2025, noted that reversal of CENVAT credit prior to the issuance of the show cause notice amounts to non-availment of credit and therefore no excise duty demand could survive.
Hindustan Zinc, which manufactures zinc ingots and lead falling under Chapters 78 and 79 of the First Schedule to the Central Excise Tariff Act, 1985, was issued seven show cause notices following an audit. The notices proposed recovery of CENVAT credit aggregating ₹19,23,60,424 on the ground that inputs and input services used in the captive power plant were attributable to the portion of electricity sold outside, and that such credit was therefore inadmissible. The company responded that it had been reversing credit every month in respect of electricity sold to the State Electricity Board and that reversal of credit legally amounts to not taking credit at all. It further contended that no reversal was required for electricity wheeled to its sister concerns.
The CESTAT agreed with the assessee and held that reversal of CENVAT credit prior to the show cause notice disentitled the department from raising a duty demand. The Bench relied on earlier decisions such as Chandrapur Magnet Wires, Precot Meridian Limited and Star Agriwarehousing & Collateral Management, which establish that reversal of CENVAT credit is equivalent to non-availment and that no demand under Section 11A of the Central Excise Act can be raised in such circumstances. Since Hindustan Zinc had already reversed the credit corresponding to electricity sold to the State Electricity Board, the Tribunal found no justification for any duty recovery.
On the question of interest, the Tribunal noted that the show cause notice did not contain even the basic particulars required for invoking liability under Section 11AA, such as the date on which the alleged duty became due and the date on which it was reversed. It commented that the notice appeared to have demanded interest merely because the credit had been shown as availed, without demonstrating how statutory conditions for charging interest had been triggered. The Tribunal observed that in the absence of a specific allegation backed by facts, recovery of interest could not be sustained.
The Tribunal also held that penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 was wholly unwarranted. It reasoned that Rule 15(1) applies only when a manufacturer takes or utilizes inadmissible CENVAT credit. In the present case, since reversal of CENVAT credit had taken place, it amounted to a situation of “not taking credit” in the eyes of the law. Therefore, there could be no foundation for imposing penalty. The Tribunal also found support for this conclusion in the Commissioner’s own order, which acknowledged the monthly reversal of credit.
In view of these findings, the CESTAT allowed all six appeals filed by Hindustan Zinc and quashed all six show cause notices and orders relating to duty, interest and penalty. The ruling reinforces the principle that when CENVAT credit is reversed before issuance of a show cause notice, the demand on the basis of alleged wrongful availment cannot be sustained and that interest and penalty cannot be imposed in the absence of clear statutory grounds.
Appearance
For Appellant: Advocates Sukriti Das, Ashutosh Chaudhary
For Respondent: Mr. Rakesh Agarwal
Cause Title: Hindustan Zinc Limited vs. The Commissioner
Case No: Excise Appeal No. 50298 Of 2025
Coram: Hon’ble Mr. Justice Dilip Gupta (President), Hon’ble Mr. S.V. Singh [Member (Technical)]
