2012 (12) TMI 41 - AT - Central Excise

Chargeability of interest - differential amount paid for inputs removed as such - reversal of equal amount of credit, done before issue of show cause notice on being pointed out Held that - This is not a case of wrong availment of credit - payment of differential amount under Rule 3(4) of the Cenvat Credit Rules, 2002, there appears to be no provision of charging of interest nor is the Ld. DR able to show any such provision - no interest is chargeable Penal liability Held that - Case would be covered under the provision of Rule 13(1) of Cenvat Credit Rules, 2002 as there is a contravention of Rule 3(4) in as much as the entire amount of credit as required under the amended provision was not reversed initially. For such contravention which was not on account of fraud, mis-statement, collusion etc. penalty reduced

Summary

Issues:
1. Whether interest and penalty are payable in a case of wrong availment of credit subsequently reversed before utilization?
2. Whether interest is chargeable in a case of payment of a differential amount under Rule 3(4) of the Cenvat Credit Rules, 2002?

Analysis:

Issue 1:
In the case of E/129/2007, the appellant initially took 100% credit for capital goods instead of the eligible 50%, but later reversed 50% before the Show Cause Notice was issued. The appellant argued that interest and penalty should not be payable based on the decision in the case of Commissioner (LTU), Bangalore v. M/s. Bill Forge Pvt. Ltd. The Department argued for the levy of interest and penalty citing the decision in UOI v. Ind-Swift Laboratories Ltd. The Tribunal noted conflicting decisions but followed the Supreme Court's ruling in Ind-Swift Laboratories Ltd., holding that interest is chargeable even if credit was wrongly taken and not utilized. The Tribunal upheld the interest liability but reduced the penalty under Rule 13(1) to Rs. 5,000 from Rs. 10,000.

Issue 2:
In the case of E/130/2007, the appellant paid a differential amount for inputs removed as such under Rule 3(4) of the Cenvat Credit Rules, 2002. The appellant reversed the credit before the Show Cause Notice was issued. The Tribunal found that this was not a case of wrong availment of credit, and there was no provision for charging interest under Rule 3(4). The Tribunal determined that no interest was chargeable in this case. However, a penalty of Rs. 5,000 was imposed under Rule 13(1) for contravening Rule 3(4) by not initially reversing the entire amount of credit as required by the amended provision.

Both appeals were disposed of, granting partial relief to the appellants in line with the above analysis.