Whether wrongly availed credit reversed by the assessee even before utilization, would attract interest and penalty?

PJ/Case Law/2012-13/2039

Case:-COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD Vs M/sBALRAMPUR CHINI MILLS LTD

Citation:-2013-TIOL-1142-CESTAT-DELHI.

Brief Facts:-The Appellant is engaged in manufacture of sugar and were availing the benefit of Cenvat credit of duty paid on various inputs as also on capital goods. However, while availing the Cenvat credit in respect of capital goods, it seems that they availed the credit in respect of those items which according to the Revenue were not capital goods. The said fact was pointed out by the audit and the appellant accepted the same and reversed the excess availed credit. The dispute is whether such excess availed credit which was reversed by the assessee, even before utilization, would attract interest and penalty or not.

Appellant contentions:-Learned Advocate appearing for the appellant draws attention to a latest decision of the Hon'ble High Court of Karnataka in the case of Commissioner of Central Excise and ST Bangalore V/s Bill Forge Pvt. Ltd. 2012 (26) S.T.R . 204 (Kar.) = (2011- TIOL -799-HC- KAR -CX).The Supreme Court decision in the case of Ind - Swift Laboratories Ltd. was considered and it was held, that the interest would be payable from the date Cenvat credit is taken or utilized wrongly. By considering the said decision of the Hon'ble Supreme Court, the Hon'ble Karnataka High Court, in an identical set of facts held that the assessee had not taken or utilized the Credit but only availed wrong credit in their account books and on pointing out the mistake, immediately reversed the entry. As no benefit of wrong entry in account books was taken, interest is not payable. The said order of the Karnataka High Court stand subsequently followed by them in the case of Commissioner of Central Excise, Bangalore V/s Pearl Insulation Ltd 2012 (281) E.L.T. 192 (Kar.).As regards the assessee’s appeal against imposition of penalty, the contention of the learned advocate is that once they reversed the credit, it amounts to as if it was never taken. For the above proposal, he relies upon the Hon’ble Supreme Court decision in the case of Commissioner of Central Excise, vs. Bombay Dyeing and Mfg. Co. Ltd. reported as [2007 (215) ELT 3 (SC)] = (2007- TIOL -115-SC-CX)as also on Hon’ble Allahabad High Court decision in the case of Hello Minerals Water Pvt. Ltd. vs. Union of India [2004 (174) ELT 422 (All)] = (2004-TIOL-57-HC-ALL-CX)As such, he submits that once the wrongly availed credit stands reversed by them, which amounts as if the same was never availed in which case penalty would not be leviable upon the appellant.

Respondent contentions:-Commissioner (Appeals) vides his impugned order has held that since the assessee reversed the credit before utilization and the same remains only as a book entry, no interest would be leviable. However, he imposed penalties upon the assessee for availing inadmissible credit. The said order of Commissioner (Appeals) stand appealed against by the Revenue as also by the assessee. Learned DR appearing for the Revenue submits that appellant had not challenged the fact of wrongly availment of credit and has reversed the same on being pointed out by the audit. This fact itself reflects upon their malafide in which case penal provisions should be invoked against the assessee.

Reasoning of Judgment:-In as much as issue stands decided, by Karnataka High Court by interpreting Supreme Court decision in Ind -Swift and the facts are not in dispute, the Tribunal found no merits in the revenue’s appeal. The same is accordingly rejected. In view of the above, Tribunal found no infirmity in the order of the Commissioner (Appeals) while setting aside the interest confirmation. Revenues appeals are accordingly rejected.

After having appreciated the submissions made by both sides, it was found that it is a case of allegedly wrong availment of credit in respect of some of the capital goods. When the audit pointed out the fact to the assessee that they were not entitled to avail the credit, the appellant instead of entering into litigation, accepted the same and reversed the same immediately. Admittedly penal provisions are invokable, once there is a malafide on the part of the assessee. In the present case, the show cause notice does not attribute any malafide intention to the appellant so as to invoke the penal provisions of Section 11AC. The arguments of the learned DR is that since 11AC stand invoked that itself is sufficient to attribute malafide to the appellant, cannot be appreciated inasmuch as there has to be element supported by evidence to invoke the provisions of Section 11 AC itself. In the absence of any such element, Tribunal do not find any justification for imposing penalties upon the assessee. The same is accordingly set aside.

Decision:- Revenue appeal dismissed and assessee’s appeal allowed.

Comment:-The crux of this case is that interest is not payable on the wrongly availed credit that is reversed subsequently, even before its utilization. The reason for the same being that the credit even if it was mistakenly availed, remained merely a book entry. The reasoning being also supported by the Karnataka High Court decision in Bill Forge as stated above. Moreover, penal provisions are also not invokable as far as the malafides of the assessee are not proved.

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PJ/Case Law/2012-13/2039

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