2015 (5) TMI 375 - HC - Central Excise

Demand of interest on wrong availment of CENVAT Credit - Whether in the facts and circumstances of the case and in law the Hon ble CESTAT, is correct in allowing the appeal filed by the assessee that the assessee is not liable to pay interest on the Cenvat Credit taken wrongly but not utilized which is beyond the purview of the provisions of the C. Excise Law and the Rules made thereunder - Held that - A bare reading of the Rule 14 would indicate that the manufacturer or the provider of the output service becomes liable to pay interest along with the duty where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded and that in the case of the aforesaid nature the provision of Section 11AB would apply for effecting such recovery - High Court proceeded by reading it down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word OR appearing in Rule 14, twice, could be read as AND by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word OR in between the expressions taken or utilized wrongly or has been erroneously refunded as the word AND . On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest - Tribunal was of the view that in view of the judgment of the Punjab and Haryana High Court the Appeal deserves to be allowed on the short ground and as such, has not gone into other aspects of the matter. We find that it will be appropriate if the matter is reconsidered by the learned Tribunal. - Matter remanded back - Decided in faovur of Revenue.

Issues Involved:
1. Liability of the assessee to pay interest on wrongly taken but not utilized Cenvat Credit.
2. Interpretation of Rule 14 of the Cenvat Credit Rules, 2004.
3. Applicability of the Apex Court's judgment in Union of India v. Ind-Swift Laboratories Ltd.
4. Consideration of other aspects by the learned Tribunal.

Detailed Analysis:

1. Liability of the Assessee to Pay Interest on Wrongly Taken but Not Utilized Cenvat Credit:
The primary issue revolves around whether the assessee is liable to pay interest on Cenvat credit that was wrongly taken but not utilized. The Revenue argued that the assessee took suo moto credit of Rs. 5,35,500/- which was not permissible and failed to pay the interest of Rs. 66,945/-. The Additional Commissioner confirmed this demand, which was upheld by the Commissioner (Appeals). However, the CESTAT allowed the assessee's appeal, relying on a judgment by the Punjab and Haryana High Court, which stated that merely taking Cenvat credit wrongly does not create a liability for payment of excise duty.

2. Interpretation of Rule 14 of the Cenvat Credit Rules, 2004:
The crux of the case is the interpretation of Rule 14, which states that where Cenvat credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered. The Apex Court in Union of India v. Ind-Swift Laboratories Ltd. clarified that the word "or" in Rule 14 should not be read as "and". Thus, interest is payable even if the credit is wrongly taken but not utilized. This interpretation overruled the Punjab and Haryana High Court's judgment, which had been relied upon by the CESTAT.

3. Applicability of the Apex Court's Judgment in Union of India v. Ind-Swift Laboratories Ltd.:
The Apex Court's ruling in Union of India v. Ind-Swift Laboratories Ltd. is pivotal. The Supreme Court held that the provisions of Rule 14 are clear and unambiguous, and the word "or" should not be substituted with "and". This means that liability for interest arises even if the credit is wrongly taken and not necessarily utilized. The Bombay High Court found that the CESTAT's decision, based on the now-overturned Punjab and Haryana High Court judgment, was no longer sustainable.

4. Consideration of Other Aspects by the Learned Tribunal:
The High Court noted that the CESTAT did not address other aspects of the matter because it allowed the appeal based on the Punjab and Haryana High Court's judgment. Given the Supreme Court's clarification, the High Court remitted the case back to the CESTAT for reconsideration on merits, including any other issues that were not previously addressed.

Conclusion:
The High Court concluded that the CESTAT's decision was not sustainable in law following the Supreme Court's judgment in Union of India v. Ind-Swift Laboratories Ltd. The appeal was partly allowed, the CESTAT's order was quashed, and the matter was remitted back to the CESTAT for a fresh decision on merits.

← Previous Next →