2016 (3) TMI 1107 - AT - Central Excise

Demand of interest - Cenvat credit wrongly availed - inputs not used for the process of manufacture of excisable goods - credit was reversed before issuance of show cause notice - Held that - by following the dictum of judgments of Karnataka High Court in the case of CCE&ST Bangalore Vs. Bill Forge P. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT and Madras High Court in the case of CCE Madurai Vs. Strategic Engineering (P) Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT the demand is not justified. - Decided in favour of appellant with consequential relief

Summary

Issues:
1. Availing irregular CENVAT credit on inputs not used for manufacturing excisable goods.
2. Disallowance of credit, imposition of interest, and penalty.
3. Challenge to the demand of interest on reversed credit.

Analysis:

Issue 1: Availing irregular CENVAT credit on inputs not used for manufacturing excisable goods
The appellants were found to have wrongly availed credit of duty on inputs not used for manufacturing excisable goods during a specific period. The appellants voluntarily reversed the credit availed on those inputs. The original authority disallowed the credit and confirmed the demand along with interest and penalty. The appeal challenged the demand of interest on the reversed credit.

Issue 2: Disallowance of credit, imposition of interest, and penalty
The Commissioner(Appeals) upheld the original authority's decision disallowing the credit, confirming the interest demand, and imposing a penalty. The appellant contended that the inputs were used for the residential colony of the factory, falling under Rule 3(5) of the CENVAT Credit Rules. The appellant argued that they reversed the credit before utilization, citing judgments supporting their position.

Issue 3: Challenge to the demand of interest on reversed credit
The appellant argued that interest should not be payable on the credit wrongly availed and subsequently reversed before utilization. The AR supported the findings in the impugned order, stating that as per the definition of inputs, they can only be used for the manufacturing process. However, the Tribunal held in favor of the appellant, citing precedents like Bill Forge (P) Ltd. and Strategic Engineering case, which established that interest is not payable on credit reversed before utilization.

In conclusion, the Tribunal set aside the demand of interest, allowing the appeal with any consequential reliefs. The judgment clarified the issue of interest payment on wrongly availed and reversed credit, aligning with the precedents cited by the appellant.