2014 (11) TMI 89 - HC - Central Excise

Levy of interest on reversal of CENVAT Credit - Credit taken but not utilized till reversal - Rule 14 of Cenvat Credit Rules, 2004 - Held that - it is an admitted fact that Rule 14 of the Cenvat Credit Rules has been subsequently amended, wherein it has been clearly stated as taken and utilised . Therefore it is quite clear the mere taking itself would not compel the assessee to pay interest as well as penalty. Further, as pointed out earlier, the subsequent amendment has given befitting answer to all doubts existed earlier. Since the subsequent amendment has cleared all doubts existed earlier in respect of Rule 14 of the said Rules, it is needless to say that the argument advanced by the learned counsel appearing for the appellant/Department is erroneous, whereas the argument advanced on the side of the respondent is really having merit and the substantial questions of law settled in the present Civil Miscellaneous Appeal are not having substance - Decided against Revenue.

Issues:
- Whether interest is recoverable from the manufacturer for erroneously taken CENVAT credit facilities?
- Whether penalty is imposable on the manufacturer for wrongly taking CENVAT credit facilities without utilization?
- Whether a mere taking of CENVAT credit facilities without utilization would attract interest and penalty?

Analysis:
1. The respondent, a manufacturer of fibre glass and other products, mistakenly took CENVAT credit facilities during a specific period, which was later reversed. A show-cause notice was issued, and the demand was upheld in Order-in-Original No. 37 of 2005. The Commissioner of Appeals partially set aside the penalty, reducing it from Rs. 1,20,000 to Rs. 10,000. An appeal was then made to the CESTAT.

2. The CESTAT, after considering arguments from both sides, allowed the appeal, setting aside the Department's claim. This decision led to the filing of the present Civil Miscellaneous Appeal by the Department.

3. The substantial questions of law settled for consideration included whether interest and penalty were applicable when CENVAT credit was taken wrongly but not utilized. The key issue was whether a mere taking of CENVAT credit facilities without utilization would attract interest and penalty.

4. The Appellate Tribunal concluded that in this case, the assessee had only taken CENVAT credit facilities, which were reversed before utilization. Therefore, the Tribunal held that the assessee was not liable to pay interest and penalty.

5. The appellant argued that a Supreme Court decision supported the imposition of interest and penalty in such cases based on Rule 14 of Cenvat Credit Rules, 2004. However, the respondent cited another decision that contradicted this interpretation.

6. The Court examined the subsequent amendment to Rule 14, which clarified the requirement of both taking and utilizing CENVAT credit for interest and penalty to be applicable. The Court found that the mere taking of CENVAT credit facilities was insufficient to warrant interest and penalty.

7. Consequently, the Court dismissed the Civil Miscellaneous Appeal, confirming the order passed by the CESTAT and emphasizing that the subsequent amendment to Rule 14 clarified that interest and penalty were not applicable solely based on the taking of CENVAT credit without utilization.

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