Whether liability to pay interest arises from the date of credit to the date of debit in CENVAT accounteven when there was no utilization of credit?

Case:- M/s DR REDDY'S LABORATORIES LTD VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE HYDRABAD

Citation:-2013-TIOL-934-CESTAT-BANG

Brief Facts:-This appeal filed by the assessee is against demand of interest of Rs. 57,784/- raised under Rule 14 of the CENVAT Credit Rules 2004read with Section 11AB of the Central Excise Act. The appellant has filed written submissions, wherein, inter alia, reliance has been placed on a decision of the Hon'ble Karnataka High Court written submissions, however, are not accompanied by any copy of the Hon'ble High Court's judgment, which has been produced by the learned Superintendent (AR). The learned Superintendent makes a lot of arguments with reference to the Hon'ble High Court's judgment and these will be considered in a later part of this order. The gist of the written submissions is that any liability to pay interest on any amount of CENVAT credit would not arise unless such credit has been utilized for payment of duty of excise on any goods or service tax on any taxable service. It is their case that, where CENVAT credit was merely taken by making an entry in the CENVAT account and reversed at a laterpoint of time by making a debit entry in the said account, there would be no question of interest liability for the period from the date of credit to the date of debit.It is in this context that the appellant refers to the Hon'ble Karnataka High Court's judgment wherein the Hon'ble High Court is said to have distinguished UOI Vs. Ind-Swift Laboratories Ltd. [2011 (265) E.L.T. 3 (S.C)] = 2011-TIOL-21-SC-CXwherein the provisions of Rule 14 ibid were interpreted by the apex court and it was held that a liability to pay interest for the period from the date of credit to the date of debit in CENVAT accountwould arise even where there was no utilization of the credit. Apart from the written submissions on merits, the appellant has also made it clear that they do not want to be personally heard.

It is not in dispute that the CENVAT credits taken by the appellant during the material period were not admissible to them. In the wake of audit objections, they reversed these credits. Each credit and the corresponding debit were separated by certain period of time. In order to recover interest for such periods, the department issued show-cause notice dated 12.03.2010 demanding an amount of Rs. 57,784/- as interest on inadmissible CENVAT credit for the period from the date of credit to the date of debit, under Rule 12 of the CENVAT Credit Rules 2002 read with Section 11AB of the Central Excise Act and proposing a penalty under Rule 13 of the CCR 2002 for violation of Rule 12 ibid. The learned Superintendent (AR) points out that the rules mentioned in the operative part of the show-cause notice are incorrect and the same should be read as Rule 14 and Rule 15 of the CENVAT Credit Rules 2004. In this context, it is observed that the appellant has not raised any grievance with regard to the provisions invoked in the show-cause notice. The proposals in the notice were contested by the party, stating that no amount of credit had been utilized by them and that the entire amount of credit taken had been reversed before the issuance of the show-cause notice and therefore they were not liable to pay interest or to be penalized. The adjudicating authority rejected these arguments and, in view of Rule 14 of the CENVAT Credit Rules 2004, confirmed the demand of interest under Section 11AB of the Act. It appears, the department had no grievance against the non imposition of penalty on the party. Against the demand of interest, the party preferred an appeal to the Commissioner (Appeals) but did not succeed. Hence the present appeal against the order of the appellate authority.

Appellant Contentions:-The appellant submitted that It appears from the grounds of this appeal coupled with the written submissions of the appellant that the entire challenge is based on two factswhich are that the CENVAT credits in question were never utilized and that they were reversed before the issuance of the show cause notice. The case of the appellant is that Rule 14 of the CCR 2004 as interpreted by the Hon'ble High Court in its judgment dated 05.04.2011 in CEA No. 96/2010 (Commissioner, LTU Bangalore Vs. Bill Forge Pvt. Ltd. Bangalore - 2011-TIOL-799-HC-KAR-CX) is against the Revenue. The appellant has laid stress on the fact that, in the case of Bill Forge Pvt. Ltd., the Hon'ble High Court has distinguished the apex court's decision in Ind-Swift Laboratories case.

Respondent Contentions:- Per contra, the argument of the learned Superintendent (AR) is that the apex court's ruling is squarely applicable to the instant case and is not distinguishable. She submits that the apex court, in its plenary jurisdiction, construed the provisions of Rule 14 of the CCR 2004 and ruled that the word ‘or' appearing between the ‘words' “taken" and “utilized” in the text of the rule could not be read as “and". On this basis, the Hon'ble Supreme Court set aside a judgment of the Punjab & Haryana High Court wherein the High Court had read down the provisions so as to hold that no liability to pay interest arose in a case where an amount of CENVAT credit taken but not utilized was reversed later on. The ruling of the apex court is binding on all courts and authorities in the country. According to the learned Superintendent (AR), the interpretation given to Rule 14 by the High Court in the case of Bill Forge Pvt. Ltd. is contrary to the apex court's ruling. According to her, the Hon'ble High Court reached a conclusion regardless of the basic provisions of Rule 3 of the CENVAT Credit Rules 2004. It is submitted that Rule 3 enabled a manufacturer of excisable products or a provider of output service to take CENVAT credit on inputs, input services and capital goods upon receipt thereof in his factory/premises. The present appellant has also done the same thing. It is argued that, while the taking of the credit is provided for under sub-rule 1 of Rule 3, its utilization is provided for under sub-rule 4. Under the latter sub-rule, CENVAT credit is utilized for payment of service tax, specified duties of excise etc. In this manner, the learned Superintendent (AR) has endeavoured to juxtapose ‘utilization' with ‘taking' of credit. Her argument is that these basic provisions were overlooked when it was held by the Hon'ble High Court that "actually, the credit is taken at the time of the removal of the excisable products." According to the learned Superintendent (AR), the decision of the Hon'ble High Court regardless of the provisions of Rule 3 of the CCR 2004 is not a good precedent to be followed. Obviously, the concept of per incuriam is being invoked against the Hon'ble High Court's decision.

The learned Superintendent (AR) argues, in answer to certain queries from the bench, that it is open to this Tribunal to consider the Hon'ble High Court's decision per incuriam . In support of this argument, reliance is placed on a judgment of the Hon'ble Andhra Pradesh High Court viz. judgment dated 13.08.2002 in W.P. No. 14175/2002 (K. Srinivas Rao Vs. State of A.P. and Ors.) . Particular reference has been made to the following paragraphs of the High Court's judgment:

"Per incuriam and sub silentio are exceptions to the concept of stare decisis . Sir John Salmond in his Treatise on Jurisprudence has aptly stated the circumstances under which a precedent can be treated per incuriam . “A precedent is not binding if it was rendered in ignorance of a statute or a rule having the force of statute, i.e., in ignorance of a statute or a rule having the force of statute, i.e., delegated legislation. This rule was laid down for the House of Lords by Lord Halsbury in the leading case ( London Street Tramways V. L.C.C. (1898) A.C. 375 ) and for the Court of Appeal it was given as the leading example of a decision per incuriam which would not be binding on the court [ Young Vs. Bristol Aeroplance Co. Ltd. (194) K.B. at 729 (C.A.)]. The rule apparently applies even though the earlier court knew of the statute in question, if it did not refer to, and had not present to its mind, the precise terms of the statute. Similarly, a court may know of the existence of a statute and yet not appreciate its relevance to the matter in hand; such a mistake is again such incuria, as to vitiate the decision. Even a lower court can impugn a precedent on such grounds."(Salmond on Jurisprudence 12th Edition pages 151 and 152)

C.K. Allen, in “Law in the Making"(page 246) analyses the concept of per incuriam as under:

“Incuria means literally ‘carelessness', which apparently is considered lessuncomplimentary than ignorantia; but in practice per incuriam appears to mean per ignorantiam. It would almost seem that ignorantia juris neminem excusatexcept a court of law, ignorance of what? The example given in the actual rules in Young's case [ Young Vs. Bristol Aeroplane Co. Ltd. (194) K.B. at 729 (C.A.) ] is ignorance of a statute, or of a rule having statutory effect [such as a Rule of the Supreme Court [Lancaster Motor Co. Ltd. Vs. Bremith Ltd. (1941) 1 KB 675)] , which would have affected the decision if the court had been aware of it."

One of the exceptions to the principle of stare decisis is where the court gives a decision per incuriam because the provisions of a statute or the authority of a case have not been brought to their attention [ Lord Goddard, CJ, in Moore Vs. Hewitt (1947 (2) AIl.ER 270]. The concept gets attracted either when an important provision of law eluded the attention of the Court or where the Court was allusive to such provisions while rendering the decision. Instances of per incuriam may also arise where the decision is rendered ignoring a binding precedent."

Reasoning of Judgment:- We have considered the submission from both parties and perused the record, we found great force therein. The doctrine of per incuriam is applicable against a judgment rendered in ignorance of any statutory provisions. It is applicable even in a case where the court which passed the judgment was aware of the statute but the precise terms of the statute were not present to its mind. The above commentary on per incuriam also indicates that even a lower court can treat a precedent as per incuriam. Tribunal has to analyse the operative part of the judgment in Bill Forge case against this backdrop. In the said case, after taking cognizance of the apex court's ruling that the question of reading the word ‘and' in the place of ‘or' would not arise, the Hon'ble High Court proceeded to consider the implications of “taking" and “utilization" of credit. In para 20 of its judgment, the Hon'ble High Court observed thus:

“Actually, the credit is taken at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment".

The Hon'ble High Court also observed that the reversal of CENVAT credit before its utilization amounted to non-taking of credit. The finding of the Hon'ble High Court that CENVAT credit is taken at the time of removal of the final product does not take into account Rule 3(1) of the CCR 2004 which provides for the “taking" of CENVAT credit by a manufacturer of excisable goods or a provider of taxable service upon receipt of inputs, input service and capital goods in the factory/premises. Sub-rule 4 of Rule 3 provides for utilization of the credit so taken, which happens at the time of removal of excisable products by a manufacturer or at the time of payment of service tax on a taxable service by a service provider, which stage is far removed from the initial stage of taking of credit. In other words, there is no question of set off or adjustment at the time of taking of credit. The provisions of Rule 3 are clear to this effect but the same did not enter into reckoning when the Hon'ble High Court decided the case of Bill Forge Pvt. Ltd. “Reversal of CENVAT credit amounting to non-taking of credit" is a concept which has been applied by this Tribunal, High Courts and the Supreme Court in cases where the benefit of some exemption notification (stipulating a condition to the effect that MODVAT/CENVAT credit on inputs shall not be taken) was claimed by manufacturers after reversing MODVAT/CENVAT credit already taken on inputs. If the same principle is applied to a case where a manufacturer or service provider was required by the Revenue to pay interest on an amount of CENVAT credit taken (though inadmissible) and later on reversed without utilization, for the period from the date of credit-taking to the date of reversal, Rule 14 would be rendered otiose, which is definitely not the legislative intent. In other words, a finding, in the context of examining interest liability under Rule 14, to the effect that reversal of CENVAT credit amounts to non-taking of credit militates against the rule itself. In this view of the matter, the doctrine of per incuriam is applicable against the decision in Bill Forge case.

At this stage, there is only one ruling that is applicable to the instant case and the same is the one handed down by the apex court after interpreting the provisions of Rule 14. The ruling is to the effect that the word ‘or' appearing between the words “taken"and “utilized" cannot be read as ‘and'. The effect of this ruling is unambiguously clear. Where an amount of inadmissible CENVAT credit was taken by a manufacturer of excisable products or a provider of output service but later on reversed, he has to pay interest under Rule 14 for the period from the date of taking of credit to the date of its reversal, whether or not the credit was utilized. This is the clear result of the interpretation given by the apex court to the provisions of Rule 14. It is binding on this Tribunal under Article 141 of the Constitution of India.

In the result, it has to be held that the short question (whether the appellant is liable to pay interest under Rule 14 of the CCR 2004 on the amounts of CENVAT credit in question) has to be settled in favour of the Revenue in view of the Hon'ble Supreme Court's ruling in Ind-Swift Laboratories case (supra). It is ordered accordingly.

Decision:-The appeal is dismissed.

Comment:-The essence of this case is that on the basis of Apex Court judgement in the case of Ind Shift,liability to pay interest arises for the period from the date of credit to the date of debit in CENVAT account even where there was no utilization of the credit.Thereafter, this decision was reversed by Karnataka High Court but it has been held that the doctrine of per incuriam is applicable against a judgment rendered in ignorance of any statutory provisions and accordingly, the interest liability has been confirmed against the assessee. However, in the present scenario, the position has been changed and the interest liability arises from the date of utilisation of credit.

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PJ/Case law/2013-14/1637

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