2018 (2) TMI 70 - AT - Central Excise

Interest on irregularly availed CENVAT credit - irregular credit was reversed before utilization - whether appellant is liable to pay interest on the irregularly availed credit, which was reversed before utilization? - Held that - pursuant to the amendment brought forth with effect from 1.4.2012, the credit availed and utilized was substituted with the words credit availed or utilized - the issue has been settled in the case of Commissioner of Central Excise, Madurai Vs. Strategic Engineering (P) Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT , where it was held that even prior to the amendment, the assessee cannot be liable to pay interest or penalties. The demand of interest and penalties imposed is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Recovery of irregularly availed CENVAT credit, liability to pay interest, imposition of penalty.

Analysis:
The case involved a manufacturer of motor vehicle parts registered with the Central Excise Department, with two plants at Tambaram and Kancheepuram. The issue arose when it was discovered that the appellant had taken incorrect CENVAT credit on input services related to Plant - III. A show cause notice was issued for recovery of &8377; 31,17,697/- along with interest and penalty. The original authority decided that post an amendment in Rule 14 of CENVAT Credit Rules from 1.4.2012, the appellant would not be liable to pay interest after that date since they had reversed the credit. However, interest prior to 1.4.2012 and a penalty of &8377; 15,58,845/- were confirmed. The Commissioner (Appeals) upheld this decision, leading to the appeal.

The appellant argued that they had promptly reversed the credit upon detection by the department and before utilizing it. The appellant relied on legal precedents such as the case of Commissioner of Central Excise, Madurai Vs. Strategic Engineering (P) Ltd. and Commissioner of Central Excise, Bangalore Vs. Bill Forge Pvt. Ltd., where it was held that interest need not be paid if wrongly availed credit is reversed before utilization. The respondent reiterated the findings of the impugned order.

The judge noted that the amendment effective from 1.4.2012 replaced "credit availed and utilized" with "credit availed or utilized." Citing the decisions in the cases referred to by the appellant's counsel, the judge highlighted that even before the amendment, interest or penalties need not be paid if wrongly availed credit is reversed. Consequently, the demand for interest and penalties was deemed unjustified. The impugned order was set aside, and the appeal was allowed, specifically setting aside the demand for interest and penalties while not disturbing the demand for wrongly availed CENVAT credit.

In conclusion, the judgment favored the appellant by ruling that they were not liable to pay interest or penalties for the wrongly availed credit that was promptly reversed, in line with legal precedents and the interpretation of relevant rules.