2010 (12) TMI 389 - HC - Central Excise

Interest - Reversed the cenvat credit wrongly taken before utilizing the same - when no credit is taken, the provisions of Rule 14 of the Rules would not be attracted Hence, there is no infirmity in the impugned order of the Tribunal, so as to warrant interference - The appeal is, accordingly, dismissed - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Rule 14 of the Cenvat Credit Rules, 2004 regarding payment of interest on wrongly availed credit.
- Liability to pay interest under Rule 14 when credit is reversed before utilization.

Analysis:
1. The appellant, Commissioner of Central Excise & Customs, challenged an order by the Tribunal questioning the justification of not paying interest on wrongly availed cenvat credit. The issue revolved around Rule 14 of the Cenvat Credit Rules, 2004, which mandates interest payment on wrongly taken credit.

2. The respondent, engaged in manufacturing Polybags/flat films, had availed cenvat credit wrongly, subsequently reversing it but failing to pay interest. The department issued a Show Cause Notice for interest recovery under Rule 14. Despite the Adjudicating Authority dropping the notice, subsequent appeals upheld the assessee's stance.

3. The appellant contended that Rule 14 necessitates interest payment regardless of intent, emphasizing strict adherence to the provision. The legislative intent aims to deter wrongful credit actions, irrespective of utilization or mala fide intent. The Tribunal's failure to acknowledge the clear text of Rule 14 was highlighted, arguing against a restrictive interpretation.

4. Authorities favored the assessee, citing the absence of mala fide intent and reliance on a Supreme Court decision. The adjudicating authority viewed the credit reversal as a bona fide correction, hence no penalty imposition was warranted.

5. The Commissioner (Appeals) and Tribunal concurred that interest liability does not arise when credit remains unused. Various High Court decisions supported this stance, leading to upholding the assessee's position.

6. The central issue was whether interest under Rule 14 applies when wrongly availed credit is reversed before utilization, which necessitated a detailed analysis of relevant legal precedents and interpretations.

7. Citing the Supreme Court's decision in Commissioner of C. Ex. Mumbai-I v. Bombay Dyeing & Mfg. Co. Ltd., the Tribunal aligned with the view that reversing credit before utilization equates to not taking credit. Rule 14 covers recovery of interest on wrongly taken or utilized credit, but not when credit is reversed before utilization.

8. The Tribunal's order was deemed sound, aligning with legal precedents and lacking any substantial question of law for appeal. Consequently, the appeal was dismissed, affirming the Tribunal's decision regarding interest payment on wrongly availed credit.