2013 (9) TMI 1166 - AT - Service Tax

Summary

Issues involved: Whether interest is payable on Cenvat credit not utilized by the appellant and subsequently reversed, and whether penalty should be imposed for breach of law.

Summary:

Issue 1: Interest on unutilized Cenvat credit
The appellant argued that interest should not be payable on the unutilized Cenvat credit of Rs. 7,85,213/- recorded from November 2004 to November 2006, as it was reversed in December 2006 without being utilized, and the Revenue was not prejudiced. The show cause notice issued in June 2009 for levying interest was contested by the appellant.

Issue 2: Penalty for breach of law
The Rule 14 of Cenvat Credit Rules operates by applying Section 11A of the Central Excise Act, 1944 for Central Excise duty cases and Section 73 of the Finance Act, 1994 for service tax cases. In this case, the recovery of Cenvat credit became impracticable due to the belated issuance of the show cause notice after the credit reversal. However, no penalty was imposed for the breach of law, and the interest became irrecoverable in the absence of any mala fide intent by the appellant.

Judgment:
The Revenue relied on a Supreme Court decision to argue for the levy of interest, but the appellant contested based on another Supreme Court judgment and subsequent legislative changes. Considering the operating mechanism of Rule 14 of Cenvat Credit Rules, which was not addressed in the cited Supreme Court decision, the appeal was allowed, and the interest was deemed irrecoverable due to the circumstances of the case.

(Dictated and pronounced in the open Court)