2009 (1) TMI 727 - AT - Central Excise

Summary

Issues:
1. Admissibility of Modvat credit on Additional Customs Duty paid on fuel imported for breaking.
2. Applicability of interest under Section 11AA of the Central Excise Act, 1944 on wrongly taken credits.

Issue 1 - Admissibility of Modvat credit on Additional Customs Duty:
The appellants took Modvat credit of Additional Customs Duty paid on fuel imported as part of a ship for breaking. It was acknowledged that the credit of CVD taken by the appellants on the duty paid on the fuel was not admissible. The Modvat credit was availed during November 2000 and March 2001. The final Adjudication order determining duty liability was issued on 21-4-03, and the appellants reversed the credit on 23-6-03. The impugned order was passed in compliance with the directions in the remand order by the Tribunal. The Tribunal directed a reevaluation of the interest imposed on the appellants in the remand proceedings.

Issue 2 - Applicability of interest under Section 11AA:
The Advocate for the appellants argued that interest under Section 11AA should not have been imposed as the credits were not utilized due to a sufficient balance of CENVAT credit in their account. He contended that the amendment to Section 11AA, effective after the Finance Act, 2001, could not be retroactively applied to the credits wrongly taken in November 2000 and March 2001. Citing relevant case law, the Advocate emphasized that if the credit remained unutilized, interest should not be chargeable. The S.D.R., however, maintained that interest was payable as per the specific provisions of Section 11AA, regardless of credit utilization.

Judgment:
Upon review, it was noted that the Commissioner (Appeals) failed to consider the appellants' argument regarding the non-leviability of interest on unutilized credits. The case law cited by the appellants, including the decision of the Hon'ble Gujarat High Court in a similar case, was found to be directly applicable. The High Court upheld the Tribunal's decision that interest is not payable on unutilized credit. Consequently, the matter was remanded back to the Commissioner (Appeals) for a fresh decision, with instructions to consider the case law cited by the appellants. The appellants were granted an opportunity to present their case before a final decision was made.