2007 (10) TMI 81 - AT - Central Excise

Interest on credit can be demanded only in case of credit wrongly taken Reversal of credit at subsequent stage because of some reason not amounts that credit originally taken was wrong So interest cannot be demanded from the date of taking credit to the date of reversal

Summary

Issues:
1. Demand of interest on balance CENVAT credit amount.
2. Interpretation of Rule 14 of the CENVAT Credit Rules, 2004.
3. Validity of the demand of interest by the department.

Analysis:
1. The issue in this case revolves around the demand for interest on the balance CENVAT credit amount of Rs. 1,12,205/- by the department. The appellants had utilized CENVAT credit taken on wire rods for payment of duty on MS wires. The department contended that the balance credit was irregularly taken since the final product, MS wires, was not excisable due to a Supreme Court decision stating that the conversion of MS rods into MS wires did not amount to 'manufacture'.

2. The interpretation of Rule 14 of the CENVAT Credit Rules, 2004 was crucial in this judgment. The rule allows for the recovery of CENVAT credit wrongly taken or erroneously refunded along with interest. The rule specifies that interest can only be recovered where the credit has been taken or utilized wrongly. In this case, although the balance credit on wire rods was reversed at the department's direction, the original taking and utilization of the credit on MS rods for MS wires were not questioned by the Revenue. Therefore, the Tribunal held that since there was no wrong taking of credit initially, there could be no demand for interest.

3. The Tribunal concluded that since the Revenue did not challenge the original taking and utilization of the CENVAT credit on MS rods for MS wires, it was not justified in demanding interest on the balance credit amount. The Tribunal set aside the impugned order and allowed the appeal, emphasizing that the reversal of the balance credit did not retroactively make the initial credit taking wrong. The judgment highlights the importance of establishing wrongful taking or utilization of credit to justify the demand for interest under Rule 14 of the CENVAT Credit Rules, 2004.