2007 (11) TMI 155 - AT - Central Excise

Assessee had destroyed credit availed inputs rejected on the basis of poor quality - Where the credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer - In present case, it cannot be held that the appellants had taken credit wrongly when some of the inputs were found to be of poor quality after receipt of the same - so demand of interest affirmed in the impugned order is not sustainable - appeal allowed

Summary

Issues:
1. Demand of interest on inadmissible credit availed by the assessee.
2. Application seeking waiver of pre-deposit and stay of recovery of interest demanded.
3. Principles of natural justice not followed in passing the original order.
4. Interpretation of Rule 14 of CCR regarding recovery of wrongly availed Cenvat credit and interest.

Analysis:

1. The case involved the demand of interest on inadmissible credit availed by the assessee, M/s. International Flavours and Fragrances India Ltd. (IFFL), for destroying credit availed inputs rejected due to poor quality during the period 2000-2004. The Assistant Commissioner demanded an amount from the assessee under Rule 14 of CCR, 2004, and Section 11AB of the Central Excise Act, 1944. The Commissioner upheld this demand, stating that the assessee had wrongly availed Cenvat credit, leading to the interest demand.

2. An application was filed seeking waiver of pre-deposit and stay of recovery of the demanded interest until the appeal against the impugned order was disposed of. The application was dismissed, and the appeal was taken up for disposal. The argument presented was that no interest was liable to be paid as the appellants had paid the interest due before the issue of the Show Cause Notice. The demand of interest was contested, and it was prayed that the interest demand be vacated.

3. The issue of natural justice was raised, alleging that the original order was passed without following the principles of natural justice. The assessee had reversed the amount related to the scrapped inputs after the department pointed out the obligation to reverse the credit. Subsequently, the Assistant Commissioner demanded interest on the inadmissible credit availed. The Commissioner upheld this demand based on the view that the assessee had wrongly availed Cenvat credit.

4. The interpretation of Rule 14 of CCR was crucial in determining the outcome of the case. The rule pertains to the recovery of wrongly availed Cenvat credit and interest thereon. The Tribunal found that the appellants had destroyed the credit availed inputs due to substandard quality, making them ineligible for the credit. It was established that the demand of interest affirmed in the impugned order was not sustainable as the inputs were found to be of poor quality after receipt. Consequently, the demand for interest was set aside, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand for interest on the inadmissible credit availed, based on the interpretation of Rule 14 of CCR and the circumstances surrounding the quality of the inputs.