2014 (2) TMI 567 - AT - Central Excise

Classification of goods - Classification under CETH 40021100 and organic chemicals falling under CETH 29 - Transaction value adopted for payment of duty was less than the value on which duty was paid by the supplier resulting in more Cenvat credit than what was eligible - Demand of differential duty - Held that - during the relevant period there were decisions that if the Cenvat credit has not been utilized, no interest is payable. Further, it was also a prevailing view that if excess Cenvat credit is available in the books, it would result in a situation whereby the Cenvat credit has not been utilized in respect of any short levy arising because of wrong utilization of Cenvat credit. In view of the above position, the submission that the provisions of Section 11A(2B) is attracted is valid. Interest is payable whether Cenvat credit has been utilized or not. Therefore the interest quantified by the appellant and adjusted against the rebate claim filed by the appellant is actually payable and has already been paid and therefore the same is confirmed - wrong practice occurred because of non-modification of the software; bona fide belief of the appellants as regards the liability, wrong payment of amount short paid for the period before issue of show cause notice without waiting for proceedings; the payment of dues for the one year period without taking excess and short payments for the whole period, I find that it is only a bona fide mistake which has resulted in short levy and no penalty is warranted - Decided partly in favour of assessee.

Summary

Issues:
1. Availment of Cenvat credit on inputs cleared without paying appropriate duty.
2. Short payment of duty for the period from 1-3-2003 to 31-3-2007.
3. Invocation of extended period due to non-modification of software for Cenvat credit account.
4. Imposition of penalty and liability to pay interest.

Analysis:

Issue 1: Availment of Cenvat credit on inputs cleared without paying appropriate duty
The appellant, engaged in manufacturing rubber latex and organic chemicals, availed Cenvat credit on inputs cleared without paying the correct duty. This led to a discrepancy where duty was paid on transaction value instead of equal to the credit taken, resulting in excess Cenvat credit utilization. The department demanded Rs. 28,53,710/-, which was later adjusted to Rs. 13,16,107/-, paid by the appellant upon identification of the error.

Issue 2: Short payment of duty for the period from 1-3-2003 to 31-3-2007
The appellant argued that the extended period should not have been invoked as the short payment was due to non-modification of their software for Cenvat credit account maintenance. The software was designed to pay tax on transaction value, leading to a bona fide belief in the appellant's compliance. The Commissioner (Appeals) accepted this claim, leaving the question of penalty imposition and interest liability.

Issue 3: Invocation of extended period due to non-modification of software
The appellant contended that the extended period was not justified as the short payment resulted from software limitations. The software, designed to pay tax on transaction value, was not updated post-amendment, leading to inadvertent errors. The Commissioner acknowledged the genuine belief arising from software constraints, focusing on penalty and interest aspects.

Issue 4: Imposition of penalty and liability to pay interest
The appellant's Chartered Accountant argued that prevailing views pre-2011 suggested no interest was payable if Cenvat credit exceeded short levy amount due to incorrect utilization. The appellant promptly paid the short levy upon identification, believing interest was not applicable. However, current legal interpretations mandate interest payment regardless of credit utilization. Considering the appellant's bona fide mistake, the penalty of Rs. 2 lakhs was set aside, emphasizing the inadvertent nature of the error.

In conclusion, the judgment highlights the importance of compliance with duty payment regulations, the impact of software limitations on tax calculations, and the evolving legal interpretations regarding interest liabilities. The decision showcases a balance between penalizing non-compliance and acknowledging genuine mistakes, ultimately setting aside the penalty while confirming the interest payment.