2016 (3) TMI 473 - AT - Central Excise

Demand of interest and penalty - reversal of Irregularly availed cenvat credit - Held that - In the present case, since taking of credit is a mere book entry and the same has not been utilized by the appellant, the question of compensating the Government does not arise because there is no loss of Revenue to the Government exchequer. With regard to the payment of interest for late reversal of cenvat credit. The Hon ble Karnataka High Court in the case of CCE & ST, LTU, Bangalore- vs Bill Gorge (P) Ltd. reported in (2011 (4) TMI 969 - KARNATAKA HIGH COURT ) has held that the credit taken if not utilized for payment of Central Excise duty, the same bears the character of a mere book entry and the interest liability cannot be confirmed against the assessee. Thus demand of interest is not proper and justified in the present case, because the cenvat credit taken by the appellant irregularly has not been utilized for clearance of final product. Section 11A of the Central Excise Act, 1944, was substituted w.e.f. 08.04.2011 by section 63 of the Finance Act, 2011. The effect of substitution is that sub-section (6) was inserted in section 11A. Since, the period involved in the case in hand is from December, 2010 to March 2011, the provisions of sub-rule (6), inserted subsequently, will not have any application for imposition of penalty. Further, the provisions of Rule 15(1) of the Cenvat Credit Rules, 2004 have not been invoked in the SCN for imposition of penalty. Thus, the penalty confirmed by both the authorities below is outside the scope and purview of SCN. - Decided in favour of assessee

Summary

Issues involved:
1. Availment of cenvat credit on specific items
2. Reversal of irregularly availed cenvat credit
3. Liability for interest amount and penalty imposition
4. Applicability of Section 11A(6) of the Central Excise Act, 1944
5. Interpretation of Rule 15(1) of Cenvat Credit Rules, 2004

Analysis:
1. The appellant had availed cenvat credit on certain items, treating them as inputs for manufacturing capital goods. The audit wing objected to this, leading to the reversal of the credit before the issuance of a show cause notice (SCN). The appellant did not utilize the irregularly availed credit for duty payment. The Tribunal noted that interest is compensatory and is due only when the principal amount is paid belatedly. Since the credit was not utilized, there was no loss to the government. Citing a Karnataka High Court judgment, the Tribunal held that interest liability cannot be confirmed if the credit remains unutilized, as it is a mere book entry. The principles from a Supreme Court judgment were deemed inapplicable to the current case due to differing facts.

2. Regarding penalty imposition, the Tribunal highlighted the substitution of Section 11A of the Central Excise Act in 2011, which included the insertion of sub-section (6). As the period in question predated this change, the provisions of sub-section (6) could not be applied for penalty imposition. Additionally, Rule 15(1) of the Cenvat Credit Rules was not invoked in the SCN for penalty imposition. Consequently, the penalty confirmed by lower authorities was deemed outside the scope of the SCN and was set aside by the Tribunal.

3. Ultimately, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant. The judgment emphasized the non-applicability of interest liability and penalty imposition based on the specific legal provisions and precedents cited during the analysis.