2023 (11) TMI 467 - AT - Central Excise

Interest on irregular CENVAT Credit availed but not utilized - availment of credit twice - availing 100% credit on capital goods in the first year itself - violation of Rule 4(2)(a) of the CENVAT Credit Rules, 2004 - invocation of extended period of time and imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Availment of capital goods credit on ineligible goods - HELD THAT - The appellant has availed input tax credit on Factory Lighting and Pallets. A perusal of the grounds of appeal indicate that the party has argued for eligibility of the credit on these goods which were utilized in the factory either as capital goods or as inputs. The Ld. adjudicating authority has dropped the demand of CENVAT Credit availed on these goods to an extent of Rs.7,82,900/- and also held that payment of interest on this demand would not arise. As such there is no need to give any finding on this demand. Whether interest is demandable on irregular CENVAT Credit availed but not utilized? - HELD THAT - The facts indicate that the appellant has reversed the irregularly availed CENVAT Credit. He has also reversed the interest amount on such irregularly or wrongly taken CENVAT Credit. The lower adjudicating authority has strictly and literally interpreted Rule 14 of the CENVAT Credit Rules, 2004. The words used in that Rule are taken or utilized wrongly . The Rule provides for recovery of irregularly or wrongly taken credit along with interest. However, regarding demand of interest for merely taking CENVAT Credit but not utilizing the same was considered and decided in favour of the appellant in many case laws. Reliance can be placed in COMMISSIONER OF CENTRAL EXCISE SERVICE TAX LARGE TAXPAYER UNIT, BANGALORE VERSUS M/S BILL FORGE PVT LTD, BANGALORE 2011 (4) TMI 969 - KARNATAKA HIGH COURT where it was held that The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise - In the case of J.K. TYRE INDUSTRIES LTD. VERSUS ASST. COMMR. OF C. EX., MYSORE 2016 (11) TMI 911 - CESTAT BANGALORE , Tribunal Large Bench has come to the conclusion that interest liability would not arise when the assessee had merely availed credit and had reversed the same before utilizing the availed credit for remittance of duty. Whether the extended period is invokable and imposition of penalty sustainable? - HELD THAT - The Show Cause Notice was issued on 17.06.2013 but the credit reversal was done on 31.08.2012 and 15.09.2012 which is much before the issuance of the Show Cause Notice. The availment of double credit or irregular credit was reportedly caused by the mischief of one of the employees of the appellant against whom they have taken disciplinary action by terminating his services. The appellant has contended that wrongly taken credit was never utilized and so no penalty is imposable. It was also submitted that the onus is on the Department to prove the intention to evade payment for invoking extended period under Section 11A(4) or proviso to Section 11A(1) of the Central Excise Act, 1944. As their accounts were audited every year, no discrepancies of excise payment noticed by the Department, as returns were filed and submitted periodically, the penalty cannot be imposed without firm establishing an intent to evade tax. The appellant though have taken credit irregularly or wrongly in the books it was never utilized. So, it is not justified to attribute any motive to evade tax to the conduct of the appellant. Even irregularly availed CENVAT Credit has been reversed by the appellant on being pointed out much before the issuance of the Show Cause Notice. As such, invoking extended period is not justified in this appeal. Thus, the appellant succeeds on limitation also. The impugned order is upheld as far as the demand of Rs.1,87,69,233/- being the ineligible credit availed by the appellant and its appropriation. The demand of recovery of interest on such ineligible CENVAT Credit availed but not utilized, along with the penalty imposed, are set aside - Appeal allowed in part.

Summary

Issues Involved:
1. Whether interest is demandable on irregular CENVAT Credit availed but not utilized?
2. Whether invocation of the extended period of time and imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 is justified?

Summary:

Issue 1: Whether interest is demandable on irregular CENVAT Credit availed but not utilized?

The appellant, M/s. Mobis India Ltd., reversed the irregularly availed CENVAT Credit and the applicable interest upon being pointed out during the audit. The lower adjudicating authority interpreted Rule 14 of the CENVAT Credit Rules, 2004, which states that interest is recoverable on credit "taken or utilized wrongly." However, the Tribunal found that several case laws, including Commissioner of Central Excise and Service Tax, LTU, Bangalore Vs. Bill Forge Pvt. Ltd. [2012 (279) ELT 209 (Kar.)], support the view that mere taking of CENVAT Credit without utilization does not attract interest liability. The Tribunal cited multiple judgments, including those from the Hon'ble Supreme Court and various High Courts, which consistently held that interest is not payable if the wrong credit is reversed before utilization. Therefore, the Tribunal concluded that the recovery of interest was not legally justified and maintainable.

Issue 2: Whether invocation of the extended period of time and imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 is justified?

The appellant reversed the entire wrongly availed CENVAT Credit and applicable interest before the issuance of the Show Cause Notice. The extended period was invoked, and penalties were imposed based on the alleged intent to evade tax. However, the Tribunal found that the appellant had enough credit balance and did not utilize the irregularly availed credit for duty payment. The Tribunal noted that the appellant's actions were due to an employee's negligence, and disciplinary action was taken against the employee. Citing the decision in Synthokem Labs Pvt. Limited Vs. Commissioner of Central Excise [Excise Appeal No. 30595/2019], the Tribunal emphasized that mere omission or clerical error without intent to evade duty does not justify invoking the extended period or imposing penalties. Therefore, the Tribunal concluded that invoking the extended period and imposing penalties was not justified.

Conclusion:

The Tribunal upheld the demand of Rs.1,87,69,233/- being the ineligible credit availed by the appellant and its appropriation. However, the demand for recovery of interest on such ineligible CENVAT Credit availed but not utilized, along with the penalty imposed, was set aside. The appeal was partly allowed with consequential relief as per law.

(Order pronounced in open court on 09.11.2023)