Whether interest and penalty is leviable on erroneously availed CENVAT Credit even if it is not utilized?

PJ/Case Law/2014-15/2177

Case:-THE COMMISSIONER OF CENTRAL EXCISE, MADURAI VERSUS M/s STRATEGIC ENGINEERING (P) LTD

Citation:- 2014-TIOL-466-HC-MAD-CX

Brief Facts:-The present Civil Miscellaneous Appeal had been directed against the Final Order passed in Final Order No. 808 of 2009, dated 03.07.2009 [2009-TIOL-1711-CESTAT-MAD] by the CESTAT.
The respondent herein was the manufacturer of fibre glass and some other products and entitled to utilise CENVAT credit facilities. During the relevant period, the respondent had taken CENVAT credit facilities erroneously and the same had been reversed. Under the said circumstances, the respondent was bound to pay interest and penalty and for the purpose of claiming the same, show-cause notice dated 06.01.2005 had been issued. The demand made in the show-cause notice had been upheld in Order-in-Original No. 37 of 2005. The Order-in-Original had been challenged before the Commissioner of Appeals. The Commissioner of Appeals had partly set aside penalty and reduced it from Rs.1,20,000/- to Rs.10,000/- and subsequently an appeal had been preferred before the CESTAT.
The CESTAT, after considering the rival contentions put forth on either side, had allowed the appeal and thereby set aside the entire claim of the Department. Against the order passed by the CESTAT, the present Civil Miscellaneous Appeal had been filed at the instance of the Department as appellant.
At the time of admitting the present Civil Miscellaneous Appeal, the following substantial questions of law have been settled for consideration:‑
"1. Whether interest was recoverable or not from the manufacturer in terms of Rule 12 of erstwhile CCR, 2002, and Rule 14 of CCR, 2004 when the CENVAT Credit had been taken wrongly by the manufacturer but kept unutilized, when the said Rules specifically state that where the CENVAT credit had been taken or utilized wrongly or had been erroneously refunded, the same along with interest shall be recovered from the manufacturer?
2. Whether penalty was imposable or not on the manufacturer in terms of Rule 13 of erstwhile CCE, 2002 and Rule 15 of CCR, 2004 when the CENVAT credit had been taken wrongly, when the said rules specifically state that if any person, takes CENVAT credit in respect of input or capital goods, wrongly or contravenes any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention had been committed, or ten thousand rupees (as it stood at the material time), whichever was greater?"
The short point involved in the present Civil Miscellaneous Appeal was as to whether a mere taken of CENVAT credit facilities without actually using it, would carry interest as well as penalty?
The Appellate Tribunal had come to a definite conclusion to the effect that in the instant case the assessee had merely taken CENVAT credit facilities and before utilising the same, they had reversed it and therefore, the assessee was not liable to pay interest and penalty.
The learned counsel appearing for the appellant had contended elaborately that the reasoning given by the Appellate Authority for setting aside the order passed by the Authority was totally baseless by the Appellate Authority was liable to be set aside.

Appellant contentions:-The entire argument put-forth on the side of the appellant/Department was based upon decision reported in 2012 (25) S.T.R. 184 (SC) (Union of India Vs. Ind-Swift Laboratories Limited) - 2011- TIOL-21-SC-CX, wherein the Apex Court had given a finding to the effect that in Rule 14 of Cenvat Credit Rules, 2004 it had been clearly mentioned three stages, known as taken or utilisation of erroneous refund. In the instant case, the first limb of Rule 14 of the said Rules was applicable and therefore, the assessee was bound to pay interest as well as penalty. The Honourable Apex Court had dealt with Rule 14 of the said Rules and subsequently on the basis of facts available in that case had given a finding to the effect that assessee therein was liable to pay interest as well as penalty.

Respondent contention:-The learned counsel appearing for the respondent had contended that the decision reported in 2012 (25) S.T.R. 184 (SC) (Union of India) Vs. Ind-Swift Laboratories Limited) 2011-TIOL-21- SC-CX had been elaborately dealt with in the decision reported in 2012 (26) S.T.R. 204 (Karnataka) (Commissioner of Central Excise & S.T Bangalore Vs. Bill Forge Private Limited) -2011-TIOL-799-HC-KAR-CX.
In fact, this Court had perused the entire decision reported in 2012 (26) S.T.R. 204 (Karnataka) (Commissioner of Central Excise & S.T Bangalore Vs. Bill Forge Private Limited) - (2011-TIOL-799-HC-KAR-CX) and ultimately found that mere taken of CENVAT credit facilities was not at all sufficient for claiming of interest as well as penalty.

Reasons of Judgment:-It was an admitted fact that Rule 14 of the Cenvat Credit Rules had been subsequently amended, wherein it had been clearly stated as "taken and utilised". Therefore it was quite clear that mere taking of cenvat itself would not compel the assessee to pay interest as well as penalty. Further, as pointed out earlier, the subsequent amendment had given befitting answer to all doubts existed earlier. Since the subsequent amendment had cleared all doubts existed earlier in respect of Rule 14 of the said Rules, it was needless to say that the argument advanced by the learned counsel appearing for the appellant/Department was erroneous, whereas the argument advanced on the side of the respondent was really having merit and the substantial questions of law settled in the present Civil Miscellaneous Appeal were not having substance and altogether the present Civil Miscellaneous Appeal deserves to be dismissed.
In fine, this Civil Miscellaneous Appeal deserves dismissal and accordingly was dismissed without costs and the order passed in Final Order No. E/920/2006, dated 03.07.2009 was confirmed.

Decision:-Appeal was dismissed.

Comment:-There was confusion regarding Interest and Penalty levied on wrongly availment of Cenvat Credit without using it but finally it comes to an end by the amendment in Rule 14 of the Cenvat Credit Rules, 2004. All controversy with respect to this matter had been solved by the amendment and further supported by the high-court order in case of Bill Forge Pvt. Ltd. The gist of this case is that the amendment in rule 14 of Cenvat Credit Rulesclearly states “Credit taken and utilized”. It means if Cenvat credit was only taken and not utilized, it doesn’t create any interest obligation. The interest obligation arises only when the erroneous credit take was also utilized.

Prepared by: Hushen Ganodwala

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PJ/Case Law/2014-15/2177

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