2010 (4) TMI 738 - HC - Service Tax

Interest - CENVAT credit - The Assessee had paid Central Excise Duty in excess - The purchasers have reversed the Cenvat Credit in their Cenvat account - the Assessee has taken Cenvat Credit but the same was not utilized for payment of duty and subsequently, the Assessee has reversed the Cenvat Credit entry in the Cenvat account - The Apex Court in the case of Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing & Manufacturing Company Limited, reported in (2007 -TMI - 1558 - Supreme Court) has held that where before the utilization of the credit amount if the entry is reversed it amounts to not taking credit - Once the credit is reversed before its utilization in the Cenvat account it does not amount to taking of credit - Thus, the provisions of Rule 14 of Cenvat Credit Rules and Section 11AB of the Act are not attracted and neither the penalty nor the interest is chargeable.

Summary

Issues:
1. Interpretation of Section 11AB of the Central Excise Act, 1944 regarding the liability to pay interest on delayed payment of duty.
2. Reduction in penalty under Rule 15 of the CENVAT Credit Rules, 2004 and its legality.

Issue 1: Interpretation of Section 11AB of the Central Excise Act, 1944

The case involved an appeal under Section 35-G of the Central Excise Act, 1944, questioning the Tribunal's order directing the Original Authority to verify the utilization of credit for the demand of interest. The appellant argued that interest under Section 11AB is automatic and not dependent on non-utilization of credit, citing precedents. The Tribunal upheld the demand of duty reversed by the Assessee in their Cenvat account and reduced the penalty to Rs. 10,000. The court analyzed Rule 14 of the CENVAT Credit Rules, 2004, and Section 11AB of the Act, emphasizing that if wrongly credited amounts are not utilized for duty payment, no consequences arise. Referring to legal precedents, it concluded that if credit is reversed before utilization, it does not amount to taking credit, hence no interest or penalty is chargeable. The court dismissed the appeal, finding no error in the Tribunal's order.

Issue 2: Reduction in Penalty under Rule 15 of the CENVAT Credit Rules, 2004

The second issue pertained to the reduction in penalty under Rule 15 of the CENVAT Credit Rules, 2004. The appellant contended that the reduction to Rs. 10,000 was unjustified. However, the court's analysis primarily focused on the interpretation of Section 11AB and Rule 14, determining that no interest or penalty was chargeable due to the reversal of wrongly credited amounts before utilization. Consequently, the court did not delve deeply into the specific aspects of the penalty reduction under Rule 15, as the main judgment centered on the interest liability under Section 11AB.

In summary, the court's judgment in this case clarified the interpretation of Section 11AB of the Central Excise Act, 1944, emphasizing that interest liability is not triggered if wrongly credited amounts are not utilized for duty payment and are subsequently reversed. The court's decision was based on legal precedents and the specific circumstances of the case, leading to the dismissal of the appeal.