2016 (5) TMI 381 - HC - Central Excise

Liability for payment of interest - Rule 14 of the Cenvat Credit Rules, 2004 - Cenvat credit taken but reversed before utilization - Appellant submitted that the Tribunal committed manifest error of law in holding that if the Cenvat credit had been taken by making paper entries only and had not been utilised, there is no liability to pay interest. Held that - the fact that the liability would arise from wrong taking of Cenvat credit by making entries and that utilisation was the second step thereafter which was not required to be necessarily fulfilled for the liability of interest. The taking of Cenvat credit precedes the utilisation. If Cenvat credit had been wrongly taken, that is an independent liability by itself irrespective of its utilisation which may have followed, as far as taxing statutes are concerned. The order of the Tribunal is therefore held to be not sustainable. - Decided in favour of appellant

Summary

Issues:
Interpretation of Rule 14 of the Cenvat Credit Rules, 2004 regarding the liability for interest on Cenvat credit taken but reversed before utilization.

Analysis:
The High Court of Chhattisgarh heard an appeal arising from an order by the Customs, Excise and Service Tax Appellate Tribunal. The Tribunal had held that if Cenvat credit was taken but reversed before utilization, interest was not payable under Rule 14 of the Cenvat Credit Rules, 2004, as the credit remained a paper entry only. The main question was whether interest was liable to be paid on subsequently reversed credit. The Court framed the issue and decided not to admit the appeal for hearing based on the arguments presented by both parties.

The Appellant argued that under Rule 14, the liability for payment arises when Cenvat credit is taken wrongly, even if not utilized. They relied on previous judgments to support their position. On the other hand, the Respondent contended that interest is compensatory in nature and should be paid when tax is due but not paid. They heavily relied on a specific case to argue that interest is not payable if Cenvat credit is reversed without utilization. The Court examined Rule 14 in its entirety and considered the arguments of both parties.

The Court referred to a previous case to emphasize that taxing statutes must be interpreted based on what is clearly expressed without importing assumptions. They analyzed Rule 14 and concluded that the conditions regarding Cenvat credit, utilization, and refund should be read disjunctively, meaning interest is payable on the occurrence of any of the three events. The Court highlighted that interest liability arises from the wrong taking of Cenvat credit, independent of its utilization.

In conclusion, the Court held that the Tribunal's decision was erroneous as the liability for interest on wrongly taken Cenvat credit exists regardless of utilization. They disagreed with the Respondent's argument and ruled in favor of the Appellant. The appeal was allowed, and the Tribunal's order was deemed unsustainable.