2008 (4) TMI 129 - AT - Central Excise

Credit taken wrongly as the credit relatable to the new unit was taken initially by another unit of the assessee company - appellant s submission that interest is demandable only if the amount of credit taken wrongly had been utilized is acceptable since wrongly taken credit was not utilized and was reversed before issue of SCN interest and penalty are not imposable

Summary

Issues:
Recovery of interest on wrongly taken Cenvat credit under Rule 14 of CCR and imposition of penalty under Rule 15(3) of CCR.

Analysis:
The case involves the appellants, M/s. Kyung shin Industrial Motherson Ltd. (KIPL), Padappai, who took credit of over Rs. 83 lakhs on input service for their new unit before it was registered. The credit was later reversed and transferred to the Head Office, an input service distributor, upon departmental officers' notification of the error. The Commissioner confirmed a demand of interest amounting to over Rs. 2,20,363 under Rule 14 of the Cenvat Credit Rules, 2004, along with a penalty of Rs. 5000 under Rule 15(3) of CCR. The appeal challenges this decision.

The appellant argued that interest should only be demanded if the wrongly taken credit had been utilized, which was not the case here as the credit was reversed and not utilized. They contended that there was no intention to evade duty liability and the credit was not irregular. The appellant cited legal authorities to support their claim, emphasizing that Section 11AB of the Act covers cases of short-payment/non-payment or erroneous refund, which did not apply in this situation.

The appellant referred to various judicial precedents to support their argument, such as the cases of Bidhata Industries Pvt. Ltd. v. CCE, CCE v. Ghodavat Foods International (Pvt.) Ltd., CCE v. Maruti Udyog Ltd., and Sri Chamundeswari Sugars Ltd v. CCE. These cases highlighted that interest was not payable if excess credit was reversed without utilization, as in the present case.

The Senior Departmental Representative (SDR) relied on Rule 14 of CCR, which allows for the collection of interest in cases of wrongly taken or utilized credit, supporting the findings of the impugned order. However, after considering the provisions and case law, the Member (T) concluded that Section 11AB provides for the recovery of interest on due duty not paid in time, for the delay in payment. Since the credit in question was not utilized and was reversed before the Show Cause Notice was issued, the demand for interest and penalty on the appellants was deemed unsustainable, leading to the allowance of the appeal.

In summary, the judgment highlights the importance of proper utilization of credit to avoid interest payments, as per the relevant rules and legal precedents. The decision emphasizes the specific circumstances under which interest can be demanded and the necessity for compliance with the provisions of the law to avoid penalties.