2015 (12) TMI 808 - HC - Central Excise

Demand of interest on reversal of CENVAT Credit - Credit on inputs used in manufacture of exempted goods - whether in terms of Rule 14 of the Cenvat Credit Rules, 2004, the appellant can be said to have taken credit wrongly - Held that - When the credit was not taken wrongly, the question of payment of interest does not arise. In this case, the circumstances discussed above show that the appellant could not have acted any other way than the way they did. In the circumstances, holding that credit was not admissible and was taken without eligibility and therefore asking them to pay interest was not correct. Moreover, any assessee, if he has any doubt, has a right to ask the department and such action is not contrary to the provisions of law. Further, in the circumstances of this case, it cannot be said that the credit had been taken by the appellant wrongly. When credit is not taken wrongly, the question of payment of interest does not arise in terms of provisions of Rule 14 of C.C.R. 2004. In these circumstances, we do not find that the appellant is liable to pay interest since credit taken by them is not wrong in the first place. It is obvious that in March, 2010, the appellant in accordance with the relevant provision of law, did seek clarification from the department to know whether the goods on clearance to the respondent-assessee are exempted from payment of excise duty in terms of the Notification and only in the absence of such clarification from the department, they took CENVAT credit during the intervening period i.e. from September, 2010 to March, 2011. It is also clearly observed that after getting clarification from TRU in April, 2011, the appellant reversed the entire amount of Cenvat credit. In that view of the matter, the specific contention put forth by the learned Standing Counsel that the respondent-assessee, without any eligibility, has taken the Cenvat credit, as such, they are liable to pay interest, is not sustainable. - there is no perversity in the order of the Tribunal and it is purely a question of fact and there is no question of law much less substantial question of law warranting interference by this Court. - Decided against Revenue.

Summary

Issues Involved:
1. Whether Cenvat Credit on inputs used in the manufacture of exempted goods can be held as not wrongly taken?
2. Whether interest liability on wrongly taken Cenvat credit can be waived?
3. Was the Tribunal justified in allowing the appeal with consequential relief despite the admission of ineligibility of the credit by the respondent?

Analysis:

Issue 1:
The case involved a dispute regarding the Cenvat Credit taken by the respondent on inputs used in manufacturing exempted goods, which was deemed irregular under Rule 6(1) of the Cenvat Credit Rules, 2004. The appellant contended that the credit was wrongly taken and interest liability should apply. However, the Tribunal found that the appellant had sought clarification from the department regarding the exemption status of goods, and in the absence of clarification, they took the credit. The Tribunal held that since the credit was not taken wrongly, the question of interest liability did not arise. The Tribunal emphasized that the circumstances justified the credit taken by the appellant, leading to the conclusion that the credit was not inadmissible.

Issue 2:
The second issue revolved around whether the interest liability on the irregularly taken Cenvat credit could be waived. The appellant argued that as per Rule 14 of the Cenvat Credit Rules, interest should be payable on wrongly taken credit, even if not utilized. The appellant cited the Supreme Court's ruling in the case of Union of India Vs. Ind-swift Laboratories Ltd. to support this argument. However, the Tribunal disagreed and held that since the credit was not taken wrongly, the liability of interest did not apply. The Tribunal stressed that the appellant had the right to seek clarification from the department and acted in accordance with the law.

Issue 3:
Lastly, the Tribunal's decision to allow the appeal with consequential relief despite the admission of ineligibility of the credit by the respondent was challenged. The appellant contended that the Tribunal erred in justifying that the credit was not wrongly taken, emphasizing the statutory provision prohibiting the taking of credit on inputs used in exempted goods. However, the High Court upheld the Tribunal's decision, stating that there was no perversity in the order and no substantial question of law warranting interference. The Court found no grounds for the appeal and dismissed it, emphasizing the factual findings of the Tribunal.

In conclusion, the High Court dismissed the Central Excise Appeal, upholding the Tribunal's decision to allow the appeal and waive the interest liability on the irregularly taken Cenvat credit, based on the circumstances and the absence of wrongdoing in taking the credit.