2008 (2) TMI 195 - AT - Central Excise

Interest on the modvat credit wrongly taken - it is very clear that even though credit was taken, it was not utilized to discharge any duty liability - entries remain merely as entries without any effect on the Government s revenue - moreover credit was reversed immediately after audit pointed out the lapse - demand of interest is not justified - allow the appeal with consequential relief

Summary

Issues:
Challenge against interest paid on modvat credit wrongly taken.

Analysis:
The appeal was filed against Order-in-Appeal No.111/2006 Central Excise dated 27.10.2006 passed by the Commissioner of Central Excise (Appeal-I), Bangalore. The challenge was specifically against the interest paid on the modvat credit wrongly taken by the appellants. The appellants had taken modvat credit for the period from April 2003 to June 2004 on the duty paid on uniforms purchased for their employees, amounting to Rs.19,39,137. The Audit party identified the irregularity in the credit taken, leading the appellants to reverse the credit between 18.6.2004 to 28.6.2004 and pay the demanded interest on 13.9.2004. Subsequently, a refund claim was filed by the appellants, which was rejected by the lower authority and upheld by the Commissioner (A) in the impugned order.

The learned Advocate representing the appellants argued that since the credit was never utilized and was reversed promptly upon identification of irregularity, no interest should be payable. The Advocate relied on the judgment of the Bench in Page Apparel Private Limited Vs. CCE and the decision of the Hon'ble Supreme Court in CCE Vs. Narayan Polypast to support this argument. The departmental representative, however, cited decisions such as CCE, Jalandhar Vs. Ranvaxy Lab. Ltd., Siddaganga Cements Pvt. Ltd. Vs. CCE, Bangalore, and Kalpataru Power Transmission Ltd. Vs. CCE, Ahmedabad, which were against the appellants.

During the hearing, it was highlighted that in the case of Siddaganga Cements Pvt. Ltd., the appellants had approached the Hon'ble Karnataka High Court, resulting in the court reversing the Tribunal's decision and the interest levy. After careful consideration, the Tribunal found that the issue was squarely covered by its previous decision in the case of Page Apparels Pvt. Ltd. It was emphasized that although the credit was taken, it was not utilized to discharge any duty liability, rendering the entries as merely entries without impacting the Government's revenue. Additionally, the immediate reversal of credit upon audit identification of the lapse was a crucial point in justifying that the demand for interest was not justified. Consequently, the appeal was allowed with consequential relief.