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2020 (3) TMI 849 - AT - Service TaxApplicability of interest to CENVAT credit recovery - Availed versus Taken and / or utilization of credit - Recovery of CENVAT credit wrongly taken or erroneously refunded - rule 14 of CENVAT Credit Rules, 2004 - HELD THAT - From a perusal of rule 14 of CENVAT Credit Rules, 2004 and, in particular, of the disjunctive collation of taken , utilized and erroneously refunded with the expression wrongly qualifying, not three but only two, it would appear that the assumption of credit and a refund of credit, if wrong, would have to pay the price in the form of interest. However, it is unusual for utilization to be qualified with ineligibility on its own as utilization is solely for the purpose of discharge of tax/duty liability which, even if not warranted, does not, by any stretch of usage, behove description as wrongly. Such a transferred epithet can only reasonably mean utilization after having been wrongly taken and, thereby, made ineligible. The foundation of the confirmation of demand, charging of interest and the imposition of penalty is built upon sand - demand set aside - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Liability of interest under Rule 14 of CENVAT Credit Rules, 2004. 2. Imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1994. 3. Applicability of interest from the date of taking credit or from the date of utilization. 4. Validity of credit reversal before utilization and its implications on interest and penalty. Detailed Analysis: 1. Liability of Interest under Rule 14 of CENVAT Credit Rules, 2004: The primary issue in these appeals is the liability of interest on CENVAT credit taken on input services used for rendering exempt services but reversed before utilization. The appellants argued that mere entry in the books without reflecting such credit in the half-yearly returns does not constitute 'taking of credit' as envisaged in Rule 3 of CENVAT Credit Rules, 2004. They relied on the decision of the Hon’ble High Court of Karnataka in *Commissioner of Service Tax, Bangalore v. The Peoples Choice* [2014 (36) STR 10 (Kar)] and the Hon’ble Supreme Court in *Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing & Manufacturing Co Ltd* [2007 (215) ELT 3 (SC)], which held that reversal of credit before utilization is as good as not having taken the credit ab initio. The tribunal noted that the appellants could not have utilized CENVAT credit as their activity did not constitute 'taxable service.' The credit was reflected for the first time in the returns filed after October 2013 and reversed before utilization. The tribunal held that Rule 14 of CENVAT Credit Rules, 2004, in its unamended version, was to be invoked in specific circumstances of credit taken or utilized wrongly or erroneously refunded. The tribunal concluded that the reversal of credit before utilization was as good as non-availment of credit in the first instance, following the proposition of law settled by the Hon’ble Supreme Court in *Bombay Dyeing & Manufacturing Co Ltd*. 2. Imposition of Penalty under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1994: The appellants challenged the penalty imposed under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1994. The tribunal observed that the foundation of the confirmation of demand, charging of interest, and imposition of penalty was built upon the assumption that the credit was wrongly taken. However, since the credit was reversed before utilization, the tribunal found no basis for imposing a penalty. The tribunal set aside the impugned orders, allowing the appeals. 3. Applicability of Interest from the Date of Taking Credit or from the Date of Utilization: The appellants contended that the liability of interest should commence from October 2013, when the credit was first reflected in the returns, rather than from 2010. The tribunal noted that the amendment in Rule 14 of CENVAT Credit Rules, 2004, enabled invoking of interest liability only on credit that was utilized. The tribunal found that the reversal of credit before utilization meant that the credit was never taken, thereby negating the interest liability from 2010. 4. Validity of Credit Reversal before Utilization and its Implications on Interest and Penalty: The tribunal emphasized that the reversal of credit before utilization is equivalent to not having taken the credit at all. This principle was supported by the Hon’ble Supreme Court in *Bombay Dyeing & Manufacturing Co Ltd*. The tribunal also referred to the decision in *Commissioner of Central Excise & Service Tax, LTU, Bangalore v. Bill Forge Pvt Ltd* [2012 (279) ELT 209 (Kar)], which emphasized that interest is recoverable only if the exchequer has been deprived of its dues. Since the credit was reversed before utilization, there was no deprivation of revenue, and hence, no interest or penalty was warranted. Conclusion: The tribunal concluded that the reversal of credit before utilization rendered the taking of credit as erased ab initio. There was no allegation that the credit reversed had been utilized to the detriment of the exchequer. The tribunal set aside the impugned orders, allowing the appeals and negating the liability of interest and penalty on the appellants. The order was pronounced in the open court on 13/03/2020, with both members concurring in the findings.
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