2011 (2) TMI 6 - SC - Central Excise

Interest on wrong cenvat credit period for which interest is payable - . A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word OR appearing in Rule 14, twice, could be read as and by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word OR in between the expressions Taken Or utilized wrongly or Has been erroneously refunded as the word and . On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest. the attempt of the High Court to read down the provision by way of substituting the word OR by an and so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules. - . In the present case the order of the Settlement Commission clearly indicates that the said order, particularly, with regard to the imposition of simple interest @ 10 per cent per annum was passed in accordance with the provisions of Rule 14 but the High Court wrongly interpreted the said Rule and thereby arrived at an erroneous finding.

Summary

Issues Involved:
1. Whether interest on CENVAT credit should be calculated from the date of wrongful availment or from the date of actual utilization.
2. The appropriateness of the High Court's interpretation of Rule 14 of the CENVAT Credit Rules, 2004.
3. The legitimacy of the Settlement Commission's order regarding interest on Rs. 50 lacs deposited by the respondent.

Detailed Analysis:

1. Interest Calculation on CENVAT Credit:
The High Court ruled that interest on CENVAT credit should be payable from the date the credit was wrongfully utilized, not from the date it was wrongly availed. The Supreme Court disagreed, stating that Rule 14 of the CENVAT Credit Rules, 2004, clearly stipulates that interest is recoverable from the date the credit is taken or utilized wrongly. The Supreme Court emphasized that the word "or" in Rule 14 should not be read as "and," and thus, interest is applicable on wrongful availment itself.

2. Interpretation of Rule 14:
The Supreme Court criticized the High Court's reading down of Rule 14, which substituted "or" with "and." The Supreme Court highlighted that Rule 14 explicitly provides for recovery of CENVAT credit along with interest when it has been taken or utilized wrongly or erroneously refunded. The Court noted that reading down a statutory provision is only warranted to save it from being unconstitutional or illegal, which was not the case here. The Court underscored that a statutory provision must be interpreted based on its clear and unambiguous language, and equitable considerations should not influence the interpretation of a taxing statute.

3. Legitimacy of Settlement Commission's Order:
The Settlement Commission had settled the duty liability and interest at 10% per annum on the wrongful availment of CENVAT credit. The Supreme Court upheld this order, noting that the respondent had admitted to the allegations and the duty liability, and had paid the entire duty amount before the issuance of the show cause notice. The Court emphasized that the Settlement Commission's order was conclusive and could not be reopened except in cases of fraud or misrepresentation. The Supreme Court found the High Court's interference with the Settlement Commission's order unwarranted, especially since the respondent had not challenged the order on its merits.

Conclusion:
The Supreme Court set aside the High Court's judgment, restoring the Settlement Commission's order. The Court affirmed that interest on wrongful CENVAT credit should be calculated from the date of availment, not utilization, and that the High Court erred in its interpretation of Rule 14. The Supreme Court also held that the High Court should not have substituted its opinion for that of the Settlement Commission regarding the interest on Rs. 50 lacs. The appeal was allowed, and the parties were directed to bear their own costs.