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2017 (9) TMI 1375 - HC - Central ExciseDemand of interest - Rule 14 of the CENVAT Credit Rules, 2004 read along with Section 11AB of the Central Excise Act, 1944 - reversal of CENVAT credit - manufacture of taxable as well as exempted goods - non-maintenance of separate set of books - Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - Held that - reliance placed in the case of Commissioner of Central Excise, Chennai - 4 vs. Sundaram Fasteners Limited 2014 (2) TMI 551 - MADRAS HIGH COURT , where it was held that Though Rule 14 contemplates that Cenvat Credit taken shall be recovered from the manufacturer along with interest the facts of the present case are slightly different as there was no allegation that there was intention on the part of the assessee to evade payment of duty by wrongly availing the credit - levy of interest is valid. Whether CESTAT, Madras was right in setting aside demand and penalty? - Held that - as per Section 73 sub-section (2) of the Finance Act, 2010, the assessee has to make an application to the Commissioner of Central Excise along with documentary evidence and a Certificate from the Chartered Accountant or a Cost Accountant, certifying the amount of input credit attributable to the inputs used in or in relation to the manufacture of exempted goods within a period of six months from the date on which the Finance Bill, 2010 received the assent of the President - Considering the fact that assessee had reversed the credit even prior to the amendment and the order of the Tribunal was in fact no different from what is contemplated under the Finance Act, 2010, this court held against the Revenue. There is no manifest error, in the final order of the CESTAT, Madras, in setting aside the demand, and restricting the same only to interest - appeal dismissed - decided against Revenue.
Issues Involved:
1. Reversal of CENVAT credit and its timing. 2. Obligation to maintain separate accounts for dutiable and exempted goods. 3. Applicability of interest and penalty on reversed CENVAT credit. 4. Interpretation and application of relevant rules and circulars. 5. Precedents and case laws impacting the judgment. Detailed Analysis: 1. Reversal of CENVAT Credit and Its Timing: The appellant challenged the CESTAT’s order which set aside the demand and penalty but directed the payment of interest. The core issue was whether the reversal of CENVAT credit post-clearance of goods was valid. The Tribunal relied on precedents, including the Supreme Court’s judgment in Chandrapur Magnet Wires (P) Ltd. vs. CCE, Nagpur, which held that credit taken and subsequently reversed is as good as not taken. The Tribunal found that the credit in question had been reversed, and thus, the demand under Rule 6(3)(b) was not sustainable. 2. Obligation to Maintain Separate Accounts: Under Rule 6(2) of the CENVAT Credit Rules, 2004, the assessee was required to maintain separate accounts for receipt, consumption, and inventory of inputs/input services used in the manufacture of dutiable and exempted goods. The 1st respondent failed to maintain such accounts, leading to a demand for 10% of the value of exempted goods under Rule 6(3)(b). The Tribunal, however, noted that the credit was reversed before the issuance of the show-cause notice, aligning with judicial precedents that such reversal nullifies the need for separate accounts. 3. Applicability of Interest and Penalty: The Tribunal directed the appellant to pay interest at the appropriate rate, acknowledging that the entire credit had been reversed but interest was not paid. The High Court referenced the Supreme Court’s decision in Union of India vs. Ind-Swift Laboratories Ltd., which clarified that interest is payable on wrongly taken or utilized credit, irrespective of its utilization. The High Court upheld the Tribunal’s direction for interest payment, reiterating that interest is compensatory. 4. Interpretation and Application of Relevant Rules and Circulars: The appellant argued that the Tribunal erred by not adhering to Board Circulars which mandated credit reversal before goods removal. However, the High Court found that the Tribunal correctly applied the law, considering the credit reversal principle established in Chandrapur Magnet Wires and subsequent cases. The High Court emphasized that the Tribunal’s reliance on judicial precedents was appropriate and that the Board Circulars did not override the judicial interpretation of the rules. 5. Precedents and Case Laws Impacting the Judgment: The High Court cited several precedents, including Sundaram Fasteners Ltd. and Commissioner of Central Excise, Puducherry vs. CESTAT, Chennai, which supported the Tribunal’s decision. These cases affirmed that credit reversal, even post-clearance, negates the need for separate accounts and nullifies the demand for 10% of the exempted goods' value. The High Court concluded that the Tribunal’s order was consistent with established legal principles and dismissed the appeal. Conclusion: The High Court upheld the Tribunal’s decision to set aside the demand and penalty while directing the payment of interest. The judgment reinforced the principle that reversed credit is equivalent to not taken credit and validated the Tribunal’s reliance on judicial precedents. The appellant’s arguments based on Board Circulars were dismissed, affirming the precedence of judicial interpretation over administrative instructions. The appeal was dismissed with no order as to costs.
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