2017 (5) TMI 1247 - AT - Central Excise

CENVAT credit - wrong availment of CENVAT credit - full amount has been reversed by the appellant - Held that - The excess availment and its reversal has been duly entered in the statutory return filed by the appellant. In such situation, there is no ground to invoke penal proceedings against the appellant. There is no legal basis to impose penalty of equivalent amount invoking provisions of Section 11AC of CEA, 1944 and Section 78 of the FA, 1994. Liability of interest - Held that - before utilisation of credit if the same has been reversed will amount to not taking credit and would not attract liability of interest - Interest liability shall be only with reference to the credit which are put to use to discharge duty on final products. There is no justification to demand and recover again the erroneous credit which is already reversed by the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Erroneous availing of Cenvat credit of service tax.
2. Demand and recovery of excess credit.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.
4. Liability for interest on utilised credit.
5. Legal basis for penal proceedings and interest liability.

Analysis:

1. The appeal challenged an order by the Commissioner of Central Excise regarding the erroneous availing of Cenvat credit of service tax by the appellants engaged in the manufacture of graphite electrodes. The appellants claimed to have mistakenly availed double credit due to a computer system error, which they rectified by reversing the excess credit and paying interest on the utilised portion. The Commissioner confirmed the demand to recover the excess credit and imposed a penalty under Section 11AC of the Act.

2. The appellant contended that they rectified the error voluntarily, reversed the excess credit, paid applicable interest, and included details in their ER-1 return. They argued against the demand for cash payment, stating that the excess credit was rectified, and any utilised credit was accompanied by interest payments. The appellant maintained that there was no legal basis for demanding the amount again in cash or imposing penalties.

3. The Tribunal acknowledged that the appellant had rectified the excess credit voluntarily, reversed the entire amount, and duly reported it in their statutory return. Consequently, the Tribunal found no grounds for penal proceedings or imposing a penalty equivalent to the excess credit amount under Section 11AC of the Central Excise Act, 1944.

4. Regarding interest liability, the appellant clarified that they had utilised only a specific amount of the excess credit, while the rest remained unused in their books. The Tribunal emphasized that interest liability should be based on the utilisation of the erroneous credit and referred to legal precedents to support this position. The Tribunal differentiated the case from the decision of the Hon’ble Supreme Court cited by the Revenue, highlighting previous Tribunal decisions and High Court rulings that favored the appellant's argument.

5. After thorough analysis, the Tribunal concluded that there was no justification to demand the recovery of the rectified excess credit or impose penalties. The interest liability was determined to apply only to the credit utilised for discharging duty on final products, emphasizing the need for verification by the jurisdictional authorities. Consequently, the impugned order was set aside, and the appeal was allowed.

This detailed analysis of the judgment highlights the issues, arguments presented by both parties, legal interpretations, and the ultimate decision of the Tribunal in favor of the appellant.