2019 (9) TMI 886 - AT - Central Excise

Interest on unutilized reversed credit entry - HELD THAT - The erstwhile Rule 14 of the Cenvat Credit Rules read as taken or utilised , which had been amended and substituted by the words taken and utilised - Such an amendment conveys the intent of the legislature and hence, substantive benefit cannot be denied to the appellant. Further, if credit has been taken but not utilised and is subsequently reversed, it leads to no consequence and results in a revenue neutral situation. The recovery of interest is untenable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Wrong availment of Cenvat credit.
2. Appropriation of reversed amount.
3. Liability to pay interest on unutilized credit.
4. Imposition of penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Wrong Availment of Cenvat Credit:
The appellant company engaged in the manufacture of alloy steel was issued a show-cause notice alleging wrong availment of Cenvat credit amounting to ?1,67,112/- on Light Diesel Oil in August 2007. The appellant reversed the amount in July 2009. The Adjudicating Authority disallowed the Cenvat credit and confirmed the demand of duty, appropriating the amount already reversed.

2. Appropriation of Reversed Amount:
The show-cause notice sought to appropriate the amount already reversed by the appellant. The Adjudicating Authority confirmed the appropriation of ?1,67,112/- reversed by the appellant in July 2009. The Commissioner (Appeals) upheld this decision, leading to the present appeal before the Tribunal.

3. Liability to Pay Interest on Unutilized Credit:
The Revenue argued that the appellant was liable to pay interest on Cenvat credit taken on an irregular basis, even if it was not utilized, citing Rule 14 of the Cenvat Credit Rules, 2004. The Tribunal referred to multiple judicial precedents, including the Hon'ble Supreme Court's decision in Union of India vs. Ind-Swift Laboratories Ltd., and various High Court decisions. The Tribunal noted that the erstwhile Rule 14 read as “taken or utilized,” which was amended to “taken and utilized,” indicating a legislative intent that interest is not recoverable if the credit was not utilized and subsequently reversed. The Tribunal highlighted the compensatory nature of interest, emphasizing that interest is due only when the duty is unpaid or short-paid, not merely on book entries.

4. Imposition of Penalty:
The show-cause notice also sought to impose a penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The Tribunal, considering the reversal of credit before utilization, found no justification for imposing a penalty. The Tribunal referred to multiple judgments where it was held that if credit is reversed before utilization, it amounts to not taking credit, and thus, no interest or penalty is warranted.

Conclusion:
The Tribunal concluded that the recovery of interest was untenable as the credit was reversed before utilization, leading to a revenue-neutral situation. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant. The judgment emphasized that the amendment to Rule 14, substituting “taken or utilized” with “taken and utilized,” reflects the legislative intent to not impose interest or penalty on unutilized reversed credits.