2007 (8) TMI 577 - AT - Central Excise

Issues Involved:
1. Availment of Excess Cenvat Credit
2. Liability to Pay Interest on Reversed Cenvat Credit
3. Interpretation of Rule 12 of Cenvat Credit Rules, 2002
4. Definition and Concept of Interest

Detailed Analysis:

1. Availment of Excess Cenvat Credit:
The appellant availed Cenvat credit of Rs. 43,44,443/- on 30th April 2003 for inputs lying in stock, in process, and contained in finished goods. Upon scrutiny, authorities found an excess credit of Rs. 12,58,118/-. The appellant reversed this excess credit on 20-7-2004 but did not pay the interest on the said amount. The appellant claimed that the excess credit was due to a miscalculation error and was not utilized, maintaining a sufficient balance in their Cenvat account.

2. Liability to Pay Interest on Reversed Cenvat Credit:
A show cause notice demanded interest of Rs. 2,09,537/- under Section 11AB of the Central Excise Act, 1944 read with Rule 12 of Cenvat Credit Rules, 2002. The adjudicating authority confirmed the demand for interest and imposed a penalty, which was upheld by the Commissioner (Appeals). The appellant argued that since the excess credit was not utilized, no interest was payable. The tribunal had to decide if the appellant was liable to pay interest on the unutilized excess credit.

3. Interpretation of Rule 12 of Cenvat Credit Rules, 2002:
Rule 12 states that "where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer." The learned SDR emphasized the word "or" to argue that interest is payable even if the credit is wrongly taken but not utilized. The tribunal noted that Rule 12 should be read in conjunction with Section 11AB, which pertains to interest on short payment of duty, implying that interest is chargeable only on the wrong utilization of credit, not merely on wrong taking.

4. Definition and Concept of Interest:
The tribunal referred to the Supreme Court's definition of "interest" in Central Bank of India v. Ravindra and others, stating it as compensation for the use or detention of money. Since the excess credit was not utilized, there was no deprivation of money due to the government. The tribunal concluded that interest is chargeable only on the quantum of credit wrongly utilized and only until sufficient legitimate credit balance is available to neutralize the misutilization.

Conclusion:
The tribunal found that the excess credit taken by the appellant was not utilized and therefore did not result in any liability to interest. The impugned order was set aside, and the appeal was allowed with consequential relief. The tribunal's decision was fortified by the Hon'ble High Court of Rajasthan's judgment in Lucid Colloids Ltd. v. Union of India, which emphasized that interest is related to the amount in default for the period the assessee remains in default of payment.

Judgment:
The appeal was allowed, setting aside the impugned order, and the appellant was granted consequential relief. The tribunal pronounced the decision in court on 29-8-2007.

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