2013 (9) TMI 413 - AT - Central Excise

Applicability of Rule 173 Q - Appellants were manufacturers of excisable goods -They had been taking credit of duty paid on inputs as per the provision of Cenvat Credit Scheme - A show cause notice was issued for recovering the said interest and also proposing to impose penalty under Rule 173Q of the erstwhile Central Excise Rules for having taken credit wrongly - Held that - Rule 173Q can be invoked only subject to provision of Section 11AC and Section 11AC was applicable only when there was fraud, suppression, mis-declaration or any act with intent to evade payment of duty - no such motive was attributed to them, no penalty can be imposed on them and the penalty imposed by the Commissioner (Appeals) required to be set aside - Union of India v. Ind-Swift Laboratories Ltd. 2011 (2) TMI 6 - Supreme Court - when Cenvat credit was taken, interest was to be paid even if such credit had not been utilized for payment of excise duty. Whether interest was payable under Section 11AA of the Central Excise Act which was in force from 26-5-1995 to 11-5-2001 Held that - A careful reading of the provision shows that it was applicable only when a short levy or non-levy of excise duty occurred - Wrong Cenvat credit taken can result in short levy or non-levy of excise duty only when such wrong credit was utilized for payment of excise duty - Such utilization had not taken place - interest was not payable. Penalty under Rule 173Q also could be imposed only if for actions with intent to evade payment of duty - There was no intention to evade duty - So penalty under Rule 173Q also was not sustainable - Interest for the period 1-4-2000 to the date of reversal will be payable by M/s. Rama Industries Ltd. - Decided in favour of Assesse.

Summary

Issues:
Recovery of interest and penalty for wrongly taking Cenvat credit on machinery used for manufacturing exempted goods.

Analysis:
The case involved M/s. Rama Industries, manufacturers of excisable goods, who had taken credit of duty paid on machinery exclusively used for manufacturing exempted final products. The issue arose when it was discovered that they had wrongly taken credit amounting to Rs. 9,44,601/- for the period 1-1-1999 to 19-10-2000. The company reversed the credit but was still liable to pay interest of Rs. 4,62,003/- for the wrongful credit taken.

The Assistant Commissioner confirmed the interest demand and imposed a penalty under Rule 173Q of the Central Excise Rules along with Section 11AC of the Central Excise Act. The Commissioner (Appeals) upheld the interest demand but reduced the penalty to Rs. 5 lakhs. Subsequently, both M/s. Rama Industries Ltd. and the Revenue filed appeals against the Commissioner's decision.

The main argument put forth by M/s. Rama Industries was that the provisions for interest under Rule 57AH came into force only from 1-4-2000, whereas the demand was for the period before that. They contended that since they had not utilized the credit, there was no short levy, and hence, no ground for levying interest under Section 11AA or 11AB of the Act. They also argued that there was no intention to evade duty as the credit was reversed promptly upon discovery.

The Revenue, however, relied on a Supreme Court decision stating that interest is payable even if the credit is not utilized for duty payment. They argued that M/s. Rama Industries should have been aware that the machinery was used exclusively for an exempted product, and thus, they should not have taken the credit in the first place.

The Tribunal analyzed the relevant rules and provisions in force during the relevant periods. It was observed that interest for wrongly taken credit was payable only from 1-4-2000 onwards as per the Supreme Court ruling. As there was no utilization of the credit for duty payment, interest was not payable under Section 11AA. Additionally, the Tribunal found no evidence of intent to evade duty by M/s. Rama Industries, leading to the conclusion that the penalty under Rule 173Q was not sustainable.

In conclusion, the Tribunal held that interest for the period from 1-4-2000 to the date of reversal would be payable by M/s. Rama Industries. The appeals filed by both the company and the Revenue were disposed of accordingly.