2018 (7) TMI 7 - AT - Central Excise

CENVAT Credit on duty paid by appellant - advance license scheme - Revenue being of the view that inasmuch as the deposits were made in terms of order of Settlement Commission, which were final order not appealable before any higher Appellate Forum, and was based on the appellants prayer for settling the dispute, the appellant was not entitled to the credit of the duty was paid - Demand of Interest - Held that - Appellant availed the credit of the duty deposited in terms of order of the Settlement Commission but subsequently reversed the same, when proceedings were initiated against them for recovery. The fact of availment of credit was duly reflected by them in their accounts as also in the ER-1 returns thus indicating absence of any mala fide on their part - by appreciating the fact that the issue involved is on bona fide issue of legal interpretation, there is no justification for imposition of penalty upon the appellant. Demand of Interest - Held that - The credit availed by the assessee remained as a paper entry only and the same was never utilized by them - Hon ble Karnataka High Court decision in the case of Commissioner of Central Excise vs. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT has held that in case the credit availed is reversed before utilization, no interest liability would arise - interest set aside. Appeal allowed in part.

Summary

Issues:
- Availment of Cenvat credit on imported raw materials without payment of duty under an advance license
- Challenge against disallowance of Cenvat credit, confirmation of interest, and imposition of penalty by the Commissioner of Central Excise, Lucknow

Analysis:

Issue 1: Availment of Cenvat credit on imported raw materials without payment of duty under an advance license
The appellant, engaged in the manufacture of 'Purified Terephthalic Acid,' imported raw materials without duty payment under an advance license for manufacturing activities. Due to unforeseen circumstances, the plant was not commissioned, leading to duty payment on the imported material. The Settlement Commission allowed the appellant to pay the admitted duty liability in installments, which were completed by February 2008. The appellant then took credit on the deposited amount in August 2008, reflected in their ER-1 returns. Revenue contended that since the Settlement Commission's order was final and not appealable, the appellant was not entitled to the credit. Subsequently, proceedings were initiated against the appellant for reversal of Cenvat credit, interest confirmation, and penalty imposition.

Issue 2: Challenge against disallowance of Cenvat credit, confirmation of interest, and imposition of penalty
The Commissioner of Central Excise, Lucknow disallowed the Cenvat credit, confirmed interest, and imposed a penalty of ?2 lakhs based on Rule 15 read with Section 11AC of the Act. During adjudication, the appellant accepted the reversal of Cenvat credit but argued against interest liability, stating the credit was not utilized and was availed under a bona fide belief. The Tribunal found that the appellant had reversed the credit upon initiation of recovery proceedings, reflecting the availment in their accounts and ER-1 returns, indicating no mala fide intent. Consequently, the penalty was set aside. Regarding interest, the Tribunal referred to a Karnataka High Court decision stating that if credit is reversed before utilization, no interest liability arises. Thus, the interest confirmation was set aside. The demand for Cenvat credit already reversed by the appellant was confirmed, while the interest and penalty portions were set aside, allowing the appeal to that extent.

This judgment highlights the importance of bona fide intent in availing credits, the impact of legal interpretations on penalty imposition, and the relevance of case law in determining interest liabilities on reversed credits.