Whether Interest is to be paid on Cenvat credit wrongly availed but entry reversed before utilization

PJ/Case Laws/2011-12/1205

Case: -Commissioner of C.Ex & Cus., Vadadara – II V/S Dynaflex Pvt Ltd.

Citation: -2011 (266) E.L.T. 41 (GUJ.)

Issue: -Whether Interest is to be paid on Cenvat credit wrongly availed but entry reversed before utilization?

Brief Facts: - Respondent-assessee were engaged in the manufacture of Polybags/flat films falling under Chapter 39. They had wrongly availed Cenvat Credit which was observed during the course of audit. Consequently assessee reversed the said credit but failed to pay interest on the credit availed.

Department issued show cause notice for recovery of interest amount under Rule 14 of CCR, 2004 read with Section 11AB of the CEA, 1944. Show cause notice was later dropped and being aggrieved department filed appeal with the Commissioners (Appeal) who dismissed the appeal. Department preferred a second appeal before the Tribunal, who also dismissed the appeal. Department is now in appeal in High Court.

Appellant’s Contention: -Department contended that in the light of the provisions of Rule 14, the assessee was liable to pay interest on the credit taken wrongly, even if there was no mala fide intent on the part of the assessee. The express provision in respect of interest provided foe in Rule 14 cannot be disregarded. In the light of the said provisions, the Adjudicating Authority has no discretion to dwell upon such factors, that the wrongly taken credit was not utilized or that such credit was reversed voluntarily or that there was no mala fide intent on the part of the assessee, so as to absolve it from the responsibility of paying interest. Intention of legislature behind enacting such a provision is to discourage strictly the act of not only wrongly utilizing the credit but of wrongly taking credit as well.

It was also submitted that the Tribunal has failed to appreciate that there is no scope for ambiguity in text of Rule 14 and on literal interpretation, it is apparent that in both the cases, that is, whether the credit is wrongly taken or utilized, the department is required to effect the recovery of CENVAT credit along with interest. It was urged that if the restrictive interpretation adopted by the Adjudicating Authority is accepted for non chargeability of interest then no interest on erroneous credit taken can be made under said rule and such interpretation would make the provision purposeless and nugatory.

Respondent’s Contention: -Respondent placing reliance on judgment in the case of Maruti Udyog Ltd [2007 (214) E.L.T A–50] for the proposition that credit wrongly taken but not utilized does not amount to taking credit. That the Adjudicating Authority was of the view that taking credit of 100% duty amount was only a bonafide mistake which has been corrected by reversing the wrongly availed amount of credit. I the absence of evidence to establish mala fide intention on respondent’s part, imposition of interest is not warranted.

Reasoning of Judgment: -The High Court referred to the judgment of Apex Court in the case of Commissioners of C. Ex Mumbai–I v/s Bombay Dyeing & Mfg Co. Ltd [2007 (215) E.L.T 3 (S.C.)] where in it was held that when an entry has been reversed before utilization the same amount to not taking credit. Rule 14 of the Rules makes provision for the recovery of interest where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded. Thus, in both cases where cenvat credit is wrongly taken or wrongly utilized, interest is recoverable under Rule 14. However, in the light of aforesaid decision of the Supreme Court, when the entry has been reversed before utilization, the same amounts to not taking CENVAT Credit. Accordingly, when no credit is taken, the provisions of Rule 14 would not be attracted. It was held that the view adopted by the Tribunal and Lower Authorities was in consonance with the view taken by the Supreme Court.

Decision: -Appeal dismissed.

Comments: - The above judgment shows consistent view maintained by courts that there is difference between availment of credit and utilization of credit and accordingly no interest is payable on availment of credit if it is reversed even if the Rule 14 provides otherwise. But the Apex court in its latest case of Indo-shift has reversed the position and held that when the language of provision is crystal clear then there is no scope of any interpretation. The interest is payable from the date of taking credit.

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PJ/Case Laws/2011-12/1205

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