2019 (2) TMI 474 - AT - Service Tax

Liability of Interest - amount of CENVAT credit taken and reversed - SCN not issued demanding interest - whether appellant is required to be issued a show cause notice for the demand of interest or otherwise? - Held that - There is no dispute as to the fact that appellant was not issued a show cause notice. The Dy. Commissioner of Customs, Central Excise & Service Tax, Warangal Division, by letter dated 12.10.2010 has demanded interest on the amounts reversed by the appellant and also specifically states that as per Rule 14 of CENVAT Credit Rules, there is no requirement for issuance of show cause notice - the lower authorities have totally erred in entertaining such a view while demanding interest without issuance of show cause notice. In the absence of any show cause notice for the recovery of interest the entire demand for interest is unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the appellant is required to be issued a show cause notice for the demand of interest on the amount of CENVAT credit taken and reversed.

Analysis:
1. The appeal challenged the Order-in-Appeal directing the reversal of CENVAT credit without interest. The appellant contended that they had already reversed the credit before the audit pointed it out, thus no interest was due. The first appellate authority rejected the appeal.

2. The appellant argued that they indicated the reversal in their monthly returns, citing precedents like B. Girijapathi Reddy and Co., Rashtriya Ispat Nigam Ltd, and Bharath Dynamics Ltd. They emphasized that interest was not applicable as they voluntarily reversed the credit and the normal limitation period applies.

3. The departmental representative highlighted that the audit party issued a notice for reversal of credit with interest, citing the Supreme Court's decision in SKF India Ltd. They referred to the decision in Vandana Vidyut Ltd and Ind-swift Laboratories Ltd, emphasizing that interest recovery does not require a show cause notice if the credit is voluntarily paid back.

4. The Tribunal deliberated on the necessity of a show cause notice for interest recovery. The Dy. Commissioner demanded interest without issuing a show cause notice, contrary to Rule 14 of CENVAT Credit Rules. The Tribunal found the lower authorities erred in demanding interest without a show cause notice, citing the case of Paper Products for the requirement of natural justice.

5. The Tribunal concluded that the demand for interest without a show cause notice was unsustainable. They held that the impugned order was to be set aside based on the principles of natural justice and the need for a show cause notice for interest recovery. The decision in Paper Products was deemed applicable, leading to the allowance of the appeal.

6. Ultimately, the Tribunal set aside the impugned order and allowed the appeal, emphasizing the importance of following the requirement of issuing a show cause notice for interest recovery, as established in the case law cited during the proceedings.