2016 (11) TMI 911 - AT - Central Excise

Imposition of interest u/r 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 and penalty u/r 15A of the Cenvat Credit Rules - wrongly availed Cenvat credit, reversed - scope of Rule 14 of the Cenvat Credit Rules, 2004 (Rules, 2004) - Held that - The decision of the Hon ble Karnataka High Court in Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT being the decision of the jurisdictional High Court and in the context of the fact that the entire cause of action, the transactions in issue, the territory within which the appellant-assessee conducts its business and has its registered office and whereat proceedings were initiated and culminated, constitutes the operative law, for the parties to this appeal. Though the Hon ble High Courts of Madras, Bombay and Chhattisgarh are seen to have taken a contrary view, have distinguished and were not persuaded to accept the ratio expounded by the Hon ble Karnataka High Court, this would not result in eclipse of the precedential vitality of the jurisdictional High Court s ruling, since while a High Court is at liberty to distinguish a persuasive decision of another High Court, the same would not amount to an overruling of the said decision nor operates to operate eclipse the precedential value of the other High Court s ratio insofar as it applies as an exposition of law within the territorial limits of that High Court. The decision of the Karnataka High Court in Commissioner of C. Ex. S.T., LTU, Bangalore v. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT constitutes the law governing and operative on the facts and transactions in the current appeal. Since the appellant had merely availed credit and had reversed the same before utilizing the availed credit for remittance of duty, interest liability would not arise.

Issues Involved:
1. Wrongful availment of Cenvat credit and its reversal before utilization.
2. Liability to pay interest on the reversed Cenvat credit.
3. Imposition of penalty for wrongful availment of Cenvat credit.

Detailed Analysis:

1. Wrongful Availment of Cenvat Credit and Its Reversal Before Utilization:

The appellant, engaged in manufacturing tyres, tubes, and flats under Chapter 40 of the Central Excise Tariff Act, 1985, availed Cenvat credit on inputs, capital goods, and input services. During an audit, it was found that the appellant had availed Cenvat credit twice on certain invoices. The appellant admitted this mistake and immediately reversed the wrongly availed Cenvat credit amounting to Rs. 1,38,748/-. This led to the initiation of proceedings against them via a show cause notice dated 17-12-2009, proposing to confirm interest and impose a penalty.

2. Liability to Pay Interest on the Reversed Cenvat Credit:

The primary adjudicating authority confirmed the interest of Rs. 11,959/- under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944. This decision was upheld by the Commissioner (Appeals). The appellant argued, relying on the Karnataka High Court's decision in CCE & ST, LTU, Bangalore v. Bill Forge Pvt. Ltd., that no interest liability arises if the wrongly availed credit is reversed before utilization. The appellant contended that since the credit was reversed before utilization, there was no loss to the Revenue, and the credit remained a paper entry in their books of accounts. The learned AR, however, referred to the contrary decision of the Madras High Court in CCE, Chennai-IV v. Sundaram Fasteners Ltd., which held that wrongly availed credit, even if not utilized, becomes recoverable along with interest.

Given the conflicting decisions from different High Courts, the matter was referred to the Larger Bench for a definitive ruling on whether interest liability arises when wrongly availed credit is reversed before utilization.

3. Imposition of Penalty for Wrongful Availment of Cenvat Credit:

The primary adjudicating authority also imposed a penalty of Rs. 2,000/- under Rule 15A of the Cenvat Credit Rules. The appellant argued that the mistake was inadvertent and not attributable to any mala fide intent, thus not justifying the imposition of a penalty.

Larger Bench Decision:

The Larger Bench addressed the conflicting High Court decisions. The Karnataka High Court in Bill Forge Pvt. Ltd. held that no interest liability arises if the credit is reversed before utilization, as it amounts to not taking credit. Conversely, the Madras High Court in Sundaram Fasteners Ltd. held that interest is recoverable on wrongly availed credit, even if not utilized.

The Tribunal, considering the jurisdictional High Court's decision in Bill Forge Pvt. Ltd., concluded that the decision of the Karnataka High Court constitutes the operative law for the current appeal. As the appellant had reversed the credit before utilizing it, no interest liability would arise. The Tribunal also overruled previous Tribunal decisions that had declared the Karnataka High Court's ruling as per incuriam.

Conclusion:

The Tribunal held that the decision of the Karnataka High Court in Bill Forge Pvt. Ltd. governs the case, and since the appellant reversed the wrongly availed credit before utilization, no interest liability arises. The reference was answered accordingly, and the imposition of interest and penalty by the lower authorities was set aside.

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