2015 (9) TMI 1484 - AT - Central Excise

CENVAT credit - Rule 4(2a) and 4(2b) of CENVAT Credit Rules, 2004 read with CBEC Circular No.942/03/2011-cx, dated 1403.2011 - Penalty - Held that - in the absence of manufacture of final products, there was no scope for removal of the same from the factory on payment of central excise duty. Hence, in such an eventuality, taking of CENVAT credit in the register maintained by the appellant will be considered as a mere book entry - In the absence of any loss of revenue to the Govt. exchequer, the demand of interest cannot be sustained against the appellant since the interest liability is compensatory in character - Decided in favor of the assessee.

Summary

Issues:
Recovery of interest and penalty under CENVAT Credit Rules for full credit taken on capital goods, Interest liability when credit is not utilized for payment of excise duty, Interpretation of relevant case laws and circulars in determining interest liability.

Analysis:
The case involved a dispute regarding the recovery of interest and penalty under the CENVAT Credit Rules due to the appellant taking full credit on duty paid for capital goods instead of the prescribed 50% in the year of receipt. The Central Excise Department sought to recover interest and impose a penalty based on this discrepancy, as per Rule 14 of the Rules and Section 11AB of the Central Excise Act, 1944. The appellant's appeal contested the interest liability, arguing that since the credit was not utilized for payment of excise duty due to delayed commercial production, there was no loss of revenue to the government. The appellant cited relevant case laws and a tribunal decision to support their stance.

In response, the Departmental Representative relied on the judgment of the Supreme Court to argue that interest liability is automatic when CENVAT credit is erroneously taken, regardless of its utilization. The Tribunal considered both arguments and examined the facts of the case. It noted that the appellant had not utilized the credit due to the absence of manufactured final products for duty payment. The Tribunal emphasized that entering credit in books without revenue implications does not warrant interest liability, as interest is compensatory.

The Tribunal referenced a judgment of the Karnataka High Court to support its decision, highlighting that credit in the register is a book entry and can be utilized later for duty payment. The Tribunal distinguished the present case from the Supreme Court judgment cited by the Revenue, as the credit in question was based on genuine documents and not utilized for final product clearance. Ultimately, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal based on the principle that no interest is required to be paid when inadvertently taken credit remains unutilized.

In conclusion, the Tribunal's decision was based on the interpretation of relevant legal provisions, case laws, and circulars regarding interest liability under the CENVAT Credit Rules. The judgment emphasized the distinction between erroneous credit utilization and inadvertent non-utilization, leading to the dismissal of the interest recovery and penalty imposition against the appellant.