2015 (10) TMI 108 - AT - Central Excise

Demand of interest on reversal of cenvat credit - Reversal of CENVAT credit if goods are not returned from the Job worker within 180 days - Demand of interest and penalty - Held that - Karnataka High Court 2011 (4) TMI 969 - KARNATAKA HIGH COURT as well as Hon ble Madras High Court 2014 (11) TMI 89 - MADRAS HIGH COURT in the cases have considered the decision of Hon ble Supreme Court made in the case of UOI Vs. Ind-Swift Laboratories Ltd. 2011 (2) TMI 6 - Supreme Court and have come to the conclusion that wherever CENVAT credit has wrongly been taken but not utilised, the interest is not payable. The Hon ble Karnataka High court in the said decision says that before utilisation of credit if the entry has been reversed, it amounts to not taking credit. - cases where CENVAT credit though wrongly taken not utilised, interest and penalty cannot be recovered from assessee. - Decided in favour of assessee.

Summary

Issues: Liability of interest on CENVAT credit for inputs not returned within 180 days, applicability of Rule 4(5)(a) of CENVAT Credit Rules 2004, imposition of penalty, interpretation of Rule 14, recoverability of interest and penalty for wrongly taken CENVAT credit.

The judgment concerns the liability of interest on CENVAT credit for inputs not returned within 180 days under Rule 4(5)(a) of the CENVAT Credit Rules 2004. The appellant reversed the credit when goods were not returned within the stipulated period, leading to the imposition of interest and penalty by the respondent. The appellant argued that a 2015 amendment changed the interpretation of Rule 14, limiting recoveries to sub-rule 7 of Rule 4. Reference was made to the Karnataka High Court and Madras High Court decisions stating that interest and penalty are not recoverable if wrongly taken credit remains unutilized.

The appellant cited the Karnataka High Court and Madras High Court decisions, emphasizing that interest and penalty should not be recoverable for wrongly taken but unutilized CENVAT credit. The respondent contended that interest and penalty are always recoverable, citing the Supreme Court decision in UOI Vs. Ind-Swift Laboratories Ltd. The Tribunal analyzed the arguments and referred to the decisions of the Karnataka High Court and Madras High Court, which aligned with the view that interest is not payable if credit is wrongly taken but not utilized, considering it equivalent to not taking credit at all.

The Tribunal highlighted the Karnataka High Court's position that reversal of CENVAT credit before utilization equates to non-taking of credit on inputs. Additionally, the Madras High Court emphasized that subsequent amendments clarified that mere taking of credit does not warrant payment of interest and penalty. Based on these interpretations and precedents, the Tribunal allowed the appeal, providing relief to the appellant in accordance with the decisions of the High Courts, thereby dismissing the recovery of interest and penalty for wrongly taken but unutilized CENVAT credit.