2024 (4) TMI 901 - AT - Central Excise

Reversal of CENVAT Credit - Interest liability on Reversal - reversal of proportionate input credit relating to the exempted goods cleared every month properly during the periods from November 2007 to January 2011 and from November 2008 to December 2010 - Rule 6(3)(a) and Rule 6(3)(ii) of CENVAT Credit Rules - HELD THAT - The appellant s claim that sufficient balance was available in CENVAT Credit account to reverse the credit and no pecuniary benefit was derived in any manner has not been contested by Revenue. Under the CENVAT credit scheme there was no co-relation of the raw material and the final product, and the manufacturer is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. The government has not been deprived of duty on the date it became due as sufficient credit was available to take care of the debits made even without taking the disputed credit into account. The Hon ble High Court of Karnataka 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 has examined the judgment of the Hon ble Supreme Court in UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. 2011 (2) TMI 6 - SUPREME COURT and distinguished the same. The Hon ble High Court held that when the assessee has not taken the benefit of the CENVAT credit, there is no liability to pay interest. Once the credit entry was reversed, it is as if the CENVAT credit was not available. Also, no interest is payable in the circumstances and the question of imposition of a penalty does not arise. The impugned orders are hence set aside, and the appeals are allowed.

Summary

Issues involved:
The issues involved in this case are related to the reversal of CENVAT credit, payment of interest on wrongly availed credit, and imposition of penalty under sec. 11AC of the Central Excise Act.

Reversal of CENVAT credit and payment of interest:
The appellants, manufacturers of cotton yarn, were availing CENVAT credit under Rule 3 of CENVAT Credit Rules, 2004. It was observed that they had not reversed the proportionate input credit relating to exempted goods cleared during certain periods. The appellant accepted the liability and reversed the ineligible CENVAT credit availed on inputs but did not pay the interest on the wrongly availed credit. Show Cause Notices were issued for recovery of interest amounts and imposition of penalty under sec. 11AC of the Act. The adjudicating authority confirmed the demands of interest amounts and imposed penalties. The Commissioner (Appeals) upheld the orders, leading the appellant to approach the Tribunal.

Arguments and Decision:
The appellant argued that there was a sufficient balance in the CENVAT Credit account to reverse the credit, and no pecuniary benefit was derived. They cited a judgment of the Hon'ble High Court of Karnataka in their favor. The Tribunal observed that under the CENVAT credit scheme, there was no co-relation of raw material and final product, and the manufacturer could use the credit at any time thereafter. It was noted that the government was not deprived of duty as sufficient credit was available to cover the debits even without considering the disputed credit. Referring to the judgment of the Hon'ble High Court of Karnataka, the Tribunal held that when the assessee did not utilize the CENVAT credit, there was no liability to pay interest. Consequently, the Tribunal set aside the impugned orders, allowing the appeals with consequential relief.

This judgment highlights the importance of correctly reversing CENVAT credit and the liability to pay interest on wrongly availed credit, based on legal provisions and precedents cited during the proceedings.