2017 (9) TMI 609 - AT - Central Excise

Demand of interest - penalty - credit reversed without utilising the same - Held that - in a situation where credit is reversed prior to utilisation thereof interest cannot be demanded - the assessee has not utilised the said credit, the demand of interest on the credit reversed before utilising the same is set aside. Penalty - Held that - It is not understood as how an error can occur where credit is taken without any documents. This can only happen when there is an intention to evade duty and default revenue. The ingredients necessary for imposing penalty under Rule 15(2) of Cenvat Credit Rules and Section 11AC of the Act are clearly available - penalty upheld. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Demand of interest on credit reversed without utilization.
2. Imposition of penalty for availing credit without supporting documents.

Analysis:
1. Demand of Interest on Credit Reversed Without Utilization:
The appellant, HYT Engineering Co. P. Ltd., challenged the demand of interest on credit reversed by them without utilizing it. The appellant relied on the decision of the Hon'ble High Court in the case of Bill Forge P. Ltd., emphasizing that if credit is reversed before utilization, interest cannot be demanded. The appellant also cited other cases to support their argument. The respondent, on the other hand, relied on the impugned order and cited the decision of the Hon'ble Apex Court in Indswift Laboratories Ltd. to assert that interest can be demanded even if the credit has not been utilized. The Tribunal examined the issue and referred to the judgment of the Hon'ble High Court of Karnataka in Bill Forge P. Ltd., which observed that interest is payable only when the benefit of the credit is taken, and if the credit is reversed before utilization, there is no liability to pay interest. The Tribunal set aside the demand of interest as the appellant had not utilized the credit before reversing it.

2. Imposition of Penalty for Availing Credit Without Supporting Documents:
The second issue pertained to the imposition of a penalty on the appellant for availing credit without supporting documents. The appellant argued that they had a sufficient balance in their accounts and promptly reversed the credit once the mistake was pointed out. However, the Tribunal noted that no documents were produced to support the availed credit, raising suspicions of an intention to evade duty and default revenue. The Tribunal found that the necessary ingredients for imposing a penalty under Rule 15(2) of Cenvat Credit Rules and Section 11AC of the Act were present, leading to the upholding of the penalty. Consequently, the appeal was partly allowed, with the demand of interest on reversed credit being set aside, but the penalty for availing credit without supporting documents being upheld.

In conclusion, the judgment addressed the issues of demand of interest on credit reversed without utilization and imposition of a penalty for availing credit without supporting documents. The decision was based on legal precedents and interpretations of relevant provisions, ultimately resulting in the partial allowance of the appeal.