2008 (5) TMI 88 - AT - Central Excise

Interest for belated reversal of irregularly availed credit - appellants had taken the full credit of duty paid on receipt of capital goods in the respective year of receipt instead of taking half of the amount - However, barring an amount of Rs. 120/- utilized in February, 2004, the assessee had not utilized any amount of credit which was not due to them legally - excess credit availed remains an entry in the proforma account and was not utilized hence interest not chargeable

Summary

Issues:
Demand of interest for belated reversal of irregularly availed credit, penalty imposition, applicability of Section 11AB for interest recovery, interpretation of Cenvat Credit Rules, 2002.

Analysis:
The appeal involved a case where M/s. Omkar Fine Organics Private Limited contested the demand of interest for belated reversal of irregularly availed credit and the penalty imposed by the Commissioner (Appeals). The appellant sought to vacate the interest demanded. It was noted that the assessee had availed cent percent credit of duty paid on capital goods during a specific period, contrary to the rule restricting the credit availed to 50% in the year of receipt. However, except for a minor excess utilization in one instance, the wrongly taken credit was not used for duty payment. The lower appellate authority upheld the demand of interest under Rule 12 of the Cenvat Credit Rules, 2002. The Commissioner (Appeals) found the demand of interest to be lawful and vacated the penalty due to the appellant's bona fide belief in availing 50% credit prematurely.

The appellant argued that the demand of interest should have been preceded by a Show Cause Notice and a duty determination order, which was not the case here. They contended that as the excess credit was promptly reversed upon discovery and not utilized wrongly, interest should not be levied. Citing precedents like Maruti Udyog Ltd. v. CCE, Gurgaon and Tata Motors Ltd. v. CCE, Jamshedpaur, the appellant sought to invalidate the interest demand. On the other hand, the SDR maintained that interest was payable by the assessee for delayed duty payment as per the law effective from a specified date.

Upon considering the arguments, the Tribunal observed that the appellants inadvertently availed full credit instead of half on capital goods receipt, with minimal utilization of the excess credit. Section 11AB allows interest recovery for delayed duty payment, but in this case, there was no delayed payment or undue benefit to the assessee. The interest provisions aim to compensate the exchequer for revenue delay, usually accompanied by a penalty for short payment. As the excess credit remained unused except for a nominal amount, the Tribunal concluded that interest was not payable under Rule 12 of the Cenvat Credit Rules and Section 11AB. Consequently, the appeal was allowed, ruling in favor of the appellant.