2015 (4) TMI 956 - AT - Central Excise

Wrong availment of CENVAT Credit - Capital goods - Demand of interest and penalty - Held that - Appellant reversed the credit on being pointed out by the audit party. It is further seen from the show cause notice that the appellant by letter dtd 17.1.2005 informed that they have inadvertently due to human/accounting mistake taken the credit and reversed the credit prior to utilising the same towards payment of central excise duty and therefore interest on reversal of excess credit is not sustainable. It is noticed that the Adjudicating authority had not disputed the fact of non-utilization of credit by the appellant. Credit taken but not utilized till reversal, could not compel the assessee to pay interest. So, the demand of interest on the unutilised cenvat credit cannot be sustained. Amount of ₹ 74,00,000/- was availed by the appellant in a number of cases, while the input cenvat credit should have been taken only on the duty on the goods as mentioned in the invoice but instead of this, the credit was taken on the full value of the goods. In some cases, credit taken on the basis of Central Excise invoices or bills of entry is more than the amount of Central Excise duty/CVD mentioned in the Central Excise Invoices/bills of entry. Further, cenvat credit amounting to ₹ 28,00,000/- has been taken on cenvated capital goods/input some job work under Rule 4 of the cenvat credit rules, which had not sent back within the stipulated period, but still the cenvat credit had not been reversed. - amount ₹ 74,00,000/- and ₹ 28,00,000/- cannot be treated as a mere erroneous availment of credit. Hence imposition of penalty is warranted. However, considering the facts and circumstance of the case the quantum of penalty should be reduced. - Decided partly in favour of assessee.

Summary

Issues:
1. Wrongly availed Cenvat Credit and imposition of penalty.
2. Payment of interest on irregular availment of credit.

Issue 1: Wrongly availed Cenvat Credit and imposition of penalty:
The case involved the appellants engaged in the manufacture of Copper Cathodes and Continuous Cast Copper under Chapter 74 of the Central Excise Tariff Act 1975. A show cause notice was issued proposing the recovery of wrongly availed Cenvat Credit along with interest and penalty. The Adjudicating Authority confirmed the demand, appropriated the amount deposited by the appellants, and imposed a penalty under the Cenvat Credit Rules 2002/2004. The appellant argued that they did not utilize the credit, reversed it before the notice, and penalty imposition was unwarranted. The Authorized Representative for Revenue cited the Supreme Court's decision, emphasizing the liability to pay interest for irregular credit availment, even if not utilized. The Tribunal analyzed the facts, noting the reversal of credit by the appellant before utilization and the non-disputed fact of non-utilization. Referring to relevant case laws, the Tribunal concluded that interest on unutilized Cenvat credit was not sustainable, aligning with the decisions of the Karnataka and Bombay High Courts. However, the Tribunal found merit in imposing a reduced penalty due to erroneous credit availment.

Issue 2: Payment of interest on irregular availment of credit:
The appellant contended that interest was not applicable as they did not utilize the credit and reversed it promptly upon detection of the mistake. The Authorized Representative for Revenue argued for interest payment based on the Supreme Court's decision in a similar case. The Tribunal examined the sequence of events, where the appellant acknowledged the error, reversed the credit, and did not benefit from the irregular entry. Citing the Karnataka and Bombay High Court judgments, the Tribunal held that interest on unutilized credit was not justified. The Madras High Court's decision further supported the dismissal of interest demand on unutilized Cenvat credit. Ultimately, the Tribunal set aside the demand for interest but upheld the imposition of a reduced penalty after considering the circumstances and facts of the case.

In conclusion, the Appellate Tribunal CESTAT AHMEDABAD ruled in favor of the appellant by setting aside the demand for interest on unutilized Cenvat credit but upheld a reduced penalty. The judgment highlighted the importance of promptly rectifying errors in credit availment and the necessity to consider the specific circumstances while determining penalties in such cases.