2023 (2) TMI 182 - AT - Service Tax

Recovery of irregular availment of CENVAT credit with interest liability of the said credit - Constitutional Validity of Rule 14 of the Cenvat Credit Rules 2004 in so far as it levies interest on Cenvat Credit of service tax taken - ultra vires Section 94 of the Finance Act, 1994 or not - time limitation for issuance of demand of interest - HELD THAT - As applicable during the relevant period, Rule 14 of CCR provided for interest where CENVAT credit was availed or it was utilized. The Hon ble Supreme Court has interpreted this clause in the case of Indswift Laboratories 2011 (2) TMI 6 - SUPREME COURT in this manner and has clearly held that the High Court had attempted erroneously to read down the provisions by way of substituting the word OR by AND so as to give relief to the assessee. This decision was followed in various other judicial decisions. The case of Billforge Pvt Ltd 2011 (4) TMI 969 - KARNATAKA HIGH COURT was different inasmuch as it was an assertion of the learned counsel for the assesse in that case that it had neither availed not utillised CENVAT credit and therefore no interest was liable to be paid. It is in that factual matrix that Hon ble High Court of Karnataka has held that no interest was liable to be paid and distinguished it from the judgement of IndSwift. Recovery of Interest - no show-cause notice was issued to the appellant for recovery of interest - time limitation - HELD THAT - If there is no specific provision under which a show-cause notice can be issued, any notice issued without the authority of law cannot be sustained. If we see the scheme Finance Act 1994 Section 75 provides for payment of interest automatically based on the amount of service tax due. Therefore there is no mechanism for separately deciding how much interest is due and adjudicating upon it. The only question is if interest is not paid and notice must be issued to the appellant, in some form asking it to pay the interest so that it can defend itself - the notice for demand of interest alone can be issued only after quantifying it. It is a different matter if the show-cause notice is issued for payment of service tax along with applicable interest. If a demand has to be issued only for amount of interest, it has to be quantified. And such quantification is possible only after the date of availment of CENVAT credit and the date of reversal are known. Therefore until 6.12.2011 when the appellant has reversed the CENVAT credit, no notice could have been issued demanding any amount as interest. Because it has to be counted from this date. A letter seeking payment of interest was issued within four months. Therefire, it cannot be said to be time barred. The recovery of interest by the Revenue from the appellant is sustainable both on merits and on limitation - the impugned order upholding such proceedings are correct and proper and call for no interference - Appeal dismissed.

Summary

Issues Involved:
1. Validity of Rule 14 of the CENVAT Credit Rules, 2004 concerning interest on CENVAT credit.
2. Legitimacy of the demand for interest on reversed CENVAT credit.
3. Applicability of the limitation period for the recovery of interest.
4. Requirement of a show-cause notice for the recovery of interest.

Detailed Analysis:

1. Validity of Rule 14 of the CENVAT Credit Rules, 2004:
The appellant initially challenged Rule 14 of the CENVAT Credit Rules, 2004, claiming it was ultra vires Section 94 of the Finance Act, 1994. However, during the hearing, the appellant did not press this issue. Consequently, the tribunal did not address the validity of Rule 14.

2. Legitimacy of the Demand for Interest on Reversed CENVAT Credit:
The appellant contended that since they had availed but not utilized the CENVAT credit and reversed it upon being pointed out, no interest liability should arise. They cited several case laws to support their position, including the decision in Commissioner of Central Excise Bangalore Vs Bill Forge Pvt Ltd and Aban Offshore Ltd Vs Commissioner of Service Tax Mumbai-IV.

However, the tribunal noted that Rule 14 of the CENVAT Credit Rules, as applicable during the relevant period, mandated interest recovery when CENVAT credit was either availed or utilized. The Supreme Court in UOI & Others Vs Ind-Swift Laboratories Ltd had clearly interpreted that the word "OR" in Rule 14 should not be read as "AND." Therefore, interest was payable even if the credit was merely availed and not utilized. The tribunal upheld this interpretation, rejecting the appellant's argument.

3. Applicability of the Limitation Period for the Recovery of Interest:
The appellant argued that the demand for interest was barred by limitation, citing several case laws. The tribunal, however, found that the interest demand was not time-barred. The letter demanding interest was issued within four months of the appellant reversing the CENVAT credit on 06.12.2011. The tribunal emphasized that the quantification of interest could only occur after the credit was reversed, making the demand timely.

4. Requirement of a Show-Cause Notice for the Recovery of Interest:
The appellant claimed that a garnish order for interest recovery could not be issued without a show-cause notice and an order-in-original. The tribunal examined whether a specific provision in the Finance Act, 1994, required a notice for interest recovery. It concluded that no such specific provision existed. The letter issued by the department on 31.03.2012, which included a calculation sheet and demanded interest, served the purpose of a notice. The appellant had responded to this letter, effectively utilizing the opportunity to defend itself. Thus, the tribunal found no procedural infirmity in the department's actions.

Conclusion:
The tribunal upheld the recovery of interest by the Revenue, finding it sustainable on both merits and limitation grounds. The impugned order was deemed correct and proper, and the appeals were rejected. The decision was pronounced in open court on 01/02/2023.