Interest on wrong availment of credit will arise from date of taking credit

PJ/Case Laws/2010-11/1106

Case: Union of India & Ors v/s M/s Ind-Swift Laboratories Ltd

Citation: 2011-TIOL-21-SC-CX

Issue:- Interest liability under Rule 14 of CCR, 2004 will arise from the date of taking credit and not from the date of utilization of credit.

Brief Facts:- Respondent-assessee had over the period from 2001 to 31.03.2006 had wrongly availed cenvat credit on invoices without receiving the goods. The matter was decided before the Settlement Commission. The respondent accepted the charges and deposited the entire duty. After the matter was settled the respondent sought a clarification as to from which date the interest liability will arise from the date of taking credit.

The respondent preferred a writ petition before the High Court. The High Court held that Rule 14 of the CENVAT Credit Rules, 2004 has to be read down to mean that where CENVAT credit has been taken and/or utilized wrongly, interest should be payable on the CENVAT credit from the date the said credit had been utilized wrongly and that interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken, as such availment by itself does not create any liability of payment of excise duty. The High Court further held that on a conjoint reading of Section 11AB of the Tariff Act and that of Rules 3 & 4 of the Credit Rules, interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit was wrongfully utilized.

Against the said judgment, Revenue filed appeal before the Supreme Court.

Reasoning of Judgment:- The Supreme Court perused Rule 14 of CCR, 2004 and held that a brief reading would indicate that the manufacturer or the provider of the output service becomes liable to pay interest along with the duty where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded and that in the case of the aforesaid nature the provision of Section 11AB would apply for effecting such recovery.

The Supreme Court perused the judgment of the High Court and observed that the High Court proceeded by reading the Rule 14 down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is wrongly utilized. In our considered opinion, the High Court misread and misinterpreted the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service.

The issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word "OR" in between the expressions `taken' or `utilized wrongly' or `has been erroneously refunded' as the word "AND". On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.

It was held that any other harmonious construction is not required to be given to the aforesaid expression/provision which is clear and unambiguous as it exists all by itself. So far as Section 11AB is concerned, the same becomes relevant and applicable for the purpose of making recovery of the amount due and payable. Therefore, the High Court erroneously held that interest cannot be claimed from the date of wrong availment of CENVAT credit and that it should only be payable from the date when CENVAT credit is wrongly utilized. Besides, the rule of reading down is in itself a rule of harmonious construction in a different name. It is generally utilized to straighten the crudities or ironing out the creases to make a statute workable. This Court has repeatedly laid down that in the garb of reading down a provision it is not open to read words and expressions not found in the provision/statute and thus venture into a kind of judicial legislation. It is also held by this Court that the Rule of reading down is to be used for the limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute. In this connection, the Supreme Court referred to the decision in Calcutta Gujarati Education Society and Another v. Calcutta Municipal Corporation and Others [(2003) 10 SCC 533] in which reference was to the observations of this Court in the case of B.R. Enterprises v. State of U.P. and Others [(1999) 9 SCC 700]: -

“The principle of reading down, however, will not be available where the plain and literal meaning from a bare reading of any impugned provisions clearly shows that it confers arbitrary, uncanalised or unbridled power."

It was held that a taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same, reference was made to the decision of this Court in Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd. [(1961) 2 SCR 189] wherein it was held that “In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency."

It was held that therefore, the attempt of the High Court to read down the provision by way of substituting the word "OR" by an "AND" so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules.

It was held that an order passed by the Settlement Commission could be interfered with only if the said order is found to be contrary to any provisions of the Act. So far findings of the fact recorded by Commission or question of facts are concerned, the same is not open for examination either by the High Court or by the Supreme Court. In the present case the order of the Settlement Commission clearly indicates that the said order, particularly, with regard to the imposition of simple interest @ 10 per cent per annum was passed in accordance with the provisions of Rule 14 but the High Court wrongly interpreted the said Rule and thereby arrived at an erroneous finding.

The Supreme Court further held that with regard to the second issue with respect to interest on Rs. 50 lacs is concerned, the same being a factual issue should not have been gone into by the High Court exercising the writ jurisdiction and the High Court should not have substituted its own opinion against the opinion of the Settlement Commission when the same was not challenged on merits.

In the end it was held that the order passed by the Punjab & Haryana High Court should be set aside. Order of the Settlement Commission was restored.

Decision:- Appeal allowed accordingly.

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PJ/Case Laws/2010-11/1106

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