2015 (11) TMI 511 - AT - Central Excise

Benefit of CENVAT Credit - Assessee availed CENVAT credit in respect of certain invoices twice - Imposition of interest u/s 11AB - Held that - As there are two contrary decisions of the High Courts, one by the Hon ble Karnataka High Court 2011 (4) TMI 969 - KARNATAKA HIGH COURT and the other by the High Court of Madras 2014 (2) TMI 551 - MADRAS HIGH COURT and inasmuch as the said issue keeps on repeatedly coming up before the Tribunal, I deem it fit to refer the matter to the Hon ble President for constitution of a Larger Bench on the following question of law - When the wrongly availed credit is reversed before utilising the same, whether interest liability would arise in respect of the same or not.

Summary

Issues involved:
1. Availing CENVAT credit twice on certain invoices.
2. Imposition of interest and penalty.
3. Interpretation of law regarding interest liability on wrongly availed credit.

Analysis:
1. The appellant, engaged in manufacturing tyres, tubes, and flats under Chapter 40 of Central Excise Tariff Act, 1985, admitted to availing CENVAT credit twice on certain invoices, amounting to Rs. 1,38,748. They promptly reversed the wrongly availed credit upon discovery during an audit.

2. Subsequently, proceedings were initiated against the appellant through a show-cause notice proposing to confirm interest and penalty. The original adjudicating authority upheld the interest of Rs. 11,959 under Rule 14 of CENVAT Credit Rules, 2004, along with a penalty of Rs. 2000 under Rule 15A. This decision was affirmed by the Commissioner (Appeals), leading to the present appeal.

3. The appellant's advocate cited the Karnataka High Court's decision in CCE&ST, LTU, Bangalore Vs. Bill Forge Pvt. Ltd., supported by the Supreme Court's ruling in UOI Vs. Ind-Swift Laboratories Ltd., to argue that no interest liability arises if wrongly availed credit is reversed before utilization. The advocate emphasized that since the credit was reversed before use, there was no loss to the Revenue, and the entry remained only on paper. Regarding the penalty, it was attributed to a clerical error without any malicious intent.

4. In contrast, the respondent's representative highlighted a recent judgment of the Madras High Court in CCE, Chennai-IV Vs. Sundaram Fasteners Ltd., which concluded that even if wrongly availed credit is not utilized, it remains recoverable along with interest. The conflicting decisions of the Karnataka and Madras High Courts prompted the Tribunal to refer the matter to the Hon'ble President for the constitution of a Larger Bench to address the question of whether interest liability arises when wrongly availed credit is reversed before utilization.