2018 (12) TMI 162 - AT - Central Excise

Demand of Interest - irregular availment of CENVAT Credit, reversed before utilization - Held that - The appellant had taken credit and without utilizing such credit, reversed the same prior to issue of show-cause notice. Tribunal in the case of J.K.Tyre & Industries Ltd. Vs. Assistant Commissioner of Central Excise, Mysore 2016 (11) TMI 911 - CESTAT BANGALORE , held that for wrong availment of cenvat credit, interest is not payable, if the credit is reversed before utilization. The demand of interest on unutilised Cenvat Credit, cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Denial of cenvat credit on incomplete ISD invoices
- Reversal of credit before show-cause notice
- Payment of interest on unutilized credit
- Conflicting decisions on levy of interest
- Applicability of penalty under Section 11AC

Detailed Analysis:
1. Denial of cenvat credit on incomplete ISD invoices:
The appellant, engaged in the manufacture and sale of carbon black, appealed against the denial of cenvat credit by the Adjudicating Authority. The appellant's Head Office, registered as an Input Service Distributor (ISD), issued ISD invoices for distributing service tax credit. The Adjudicating Authority proposed denial of credit amounting to ?1,58,00,485 on the ground that the ISD invoices were incomplete. The consultant for the appellant argued that the annexure to the invoice containing all details should be considered an integral part of the invoice, and substantive credit cannot be denied for technical infractions when all details were available in the annexure.

2. Reversal of credit before show-cause notice:
The appellant reversed the cenvat credit of ?1,58,00,485 suo motu before the show-cause notice was issued, without utilizing the credit except for Education Cess and Higher Education Cess. The consultant submitted a certificate from a Chartered Accountant confirming that the credit was not utilized for payment of Excise duty. The Tribunal referred to previous cases where interest was not payable if the credit was reversed before utilization, citing the case law of J.K.Tyre & Industries Ltd. and Garden Silk Mills Ltd. The Tribunal held that no interest is payable when unutilized credit is reversed before the show-cause notice.

3. Payment of interest on unutilized credit:
The Adjudicating Authority had ordered the payment of interest on the unutilized credit under Rule 14 of the Cenvat Credit Rules, 2004. However, the Tribunal, considering conflicting decisions by various High Courts and Tribunals, ruled that no interest is payable when the credit is reversed before utilization. Citing the decision of the Hon’ble Supreme Court, the Tribunal held that in cases where credit is wrongly taken but reversed before utilization, it amounts to not taking credit, and hence, interest is not applicable.

4. Conflicting decisions on levy of interest:
The Tribunal noted conflicting decisions on the levy of interest in similar cases. However, it relied on the decision of the Hon’ble Supreme Court and the Hon’ble Jurisdictional High Court to rule that no interest is payable when the credit is reversed before utilization. The Tribunal emphasized that in this case, the appellant had not utilized the credit till its reversal, and therefore, no interest was payable.

5. Applicability of penalty under Section 11AC:
The Tribunal observed that as there was no intention to evade duty, the penalty under Section 11AC of the Central Excise Act, 1944, was not leviable. Therefore, the Tribunal set aside the demand for interest and penalty, upholding the Order-in-Original with modifications. The appeal filed by the appellant was allowed based on these terms.