2012 (11) TMI 116 - AT - Central Excise

Demand of duty, interest and penalty alleged that appellant wrongly availed cenvat credit Held that - Respondent has taken cenvat credit of service tax on input services before they had made the actual payment for the services received and the tax thereon - assessee promptly reversed the cenvat credit taken by them assessee cannot be found fault with and if the demand for interest is upheld, it will be against the interest of the respondents for no fault of the respondent - matter remanded to Commissioner (Appeals) for fresh decision

Summary

Issues:
1. Appropriation of cenvat credit before actual payment for services.
2. Imposition of penalty under Section 11AC of Central Excise Act, 1944.
3. Demand for interest on cenvat credit under Cenvat Credit Rules.

Appropriation of Cenvat Credit:
The respondent had taken cenvat credit of service tax on input services before making actual payments for the services and tax thereon. Upon being notified, the respondent promptly reversed the credit in December 2006. The show cause notice proposed to appropriate the amount already paid towards duty and impose a penalty under Section 11AC of the Act. The impugned order set aside the demand for interest but accepted the argument that there was no intention to evade duty, no suppression of facts, or fraud alleged in the notice. The penalty under Section 11AC was also set aside, considering the situation as revenue neutral.

Imposition of Penalty under Section 11AC:
The Revenue appealed against the decision, arguing that interest is payable under the Cenvat Credit Rules whether the credit is utilized or not. The learned AR contended that the liability for interest on cenvat credit had been conclusively settled against the respondents based on a Supreme Court decision. However, the advocate for the respondent argued that the facts of this case did not warrant blind adherence to the Supreme Court decision. The appellant had no objection to reversing the cenvat credit, as they had paid for the services and tax, and the credit remained unutilized. The Revenue issued a show cause notice more than a year after the payment, without invoking extended period demand, which the appellant did not contest.

Demand for Interest under Cenvat Credit Rules:
The change in the legal interpretation of Rule 14 of the Cenvat Credit Rules, as per the Supreme Court decision, altered the liability for interest even if the credit remained unutilized. The Commissioner (Appeals) decision, based on the legal interpretation prevailing at the time, needed reconsideration due to the change in law. The Tribunal remanded the matter to the Commissioner (Appeals) for a fresh decision, considering the altered legal position. It was emphasized that in a revenue-neutral situation where the penalty was set aside, upholding the demand for interest would be unjust to the respondents. The Tribunal highlighted the need for a fair resolution that considers the changed legal landscape and provides an opportunity for the respondents to present their case.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Ahmedabad covers the issues of appropriation of cenvat credit, imposition of penalty under Section 11AC, and demand for interest under the Cenvat Credit Rules comprehensively, highlighting the legal arguments, decisions, and considerations involved in the case.