Whether the interest and penalty is payable by the assessee in case where the wrongly availed credit has been reversed without utilization of the same?

PJ/Case Laws/2012-13/1132

Case: PEARL INSULTATIONS V/S COMMISSIONER OF C.Ex, Bangalore

Citation: 2012(280) S.T.R. 559(Tri.-Bang.)

Issue:- Whether the interest and penalty is payable by the assessee in case where the wrongly availed credit has been reversed without utilization of the same?

Brief Facts: - This stay petition is filed for waiver of pre-deposit of the following amounts:-
(a) Interest - Rs. 2, 50,177/-
(b) Penalty - Rs. 27, 33,155 / -
The demand of interest has arisen on the ground that the appellant has availed Cenvat credit on the inputs which were used in production of exempted as well as dutiable products.

Appellant’s Contention: - The appellants contended that he has reversed the entire amount attributable to the credit taken which were utilized in exemption products. He also submit that the fact that the he has not utilized the amount which were sought to be reversed by the Department. He specifically takes up through the findings of Adjudicating Authority which has been upheld by the Id. Commissioner (Appeals). He also relied on the judgment of the Hon'ble High Court of Ind-Swift Laboratories Ltd. v. UOI [2009 (240) E.L.T. 328 (P & H)].

Respondent’s Contention: - The respondents argued that the liability to interest would arise where the Cenvat credit has been taken wrongly but reversed by the assessee before utilization of the credit. He would submit that the Cenvat credit has been wrongly taken and Board's Circular 3-9-2009 will be applicable in full and the appellant is required to pay interest as adjudged by the lower authorities.

Reasoning of Judgment: - The Hon’ble Tribunal held that the appeal itself could be disposed off at this juncture since the issue involved is in narrow compass. After allowing the stay petition for waiver of pre-deposit of amount, he takes up the appeal for disposal. He further held that Hon'ble High Court of P & H in the case of Indi-Swift Laboratories Ltd. (supra) examined the provisions of Rules which was relied upon by the appellant in the Judgment , which we respectfully reproduce below :-
"Reliance of respondents on Rule 14 of the Credit Rules that interest under Section 11AB of the Act is payable even if CENVAT credit has been taken. In our view, said clause has to be read down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable on the Cenvat credit taken and utilized wrongly. 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. On a co-joint reading of Section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CEN VAT credit is wrongly utilized."
Since the law is not settled by the Hon'ble High Court of P&H in the assessee's favour, he, following the same, set aside the impugned order and allow the appeal filed by the assessee. Stay petition is also disposed off.

Decision: - The appeal was allowed.
Comments : - Though the case referred in above case Ind-Swift Laboratories was later overruled by Supreme Court holding that interest on the credit availed is payable even if not utilized. However in the recent budget, Rule – 14 has been amended holding that interest shall be payable only if credit is availed and utilized wrongly.

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PJ/Case Laws/2012-13/1132

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