2025 (1) TMI 931 - AT - Central Excise

Liability to pay interest - reversal of Cenvat credit - whether the appellant is liable to pay interest and can also be imposed with penalty if the Cenvat credit is reversed even before utilising the Cenvat credit? - inclusion of the terminal charges in the assessable value - price revision of petroleum products with retrospective effect. Interest on reversal of Cenvat credit and penalty - HELD THAT - The Hon ble High Court of Karnataka in the matter of 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 held that if the Cenvat credit is reversed before utilization of credit it amounts to not taking credit no liability to pay interest. Hence we find that against show-cause notice dated 04.12.2006 the appellant is not liable to pay interest on the reversal of unutilized Cenvat credit and thus no penalty under Rule 25 of Central Excise Rules 2002 can be imposed for that reason. Demand of interest in the other two show cause notices and imposition of penalty under Rule 25 of Central Excise Rules 2002 in show cause notice dated 20.09.2006 - HELD THAT - The inclusion of the terminal charges in the accessible value and the revision of petroleum products with retrospective effect has resulted in payment of differential duty which the appellant has discharged and there is no dispute on these two issues. The appellant has paid the differential duties and is only contesting the payment of interest and imposition of penalty - since there is no limitation prescribed under the statute for payment of interest and there is no interest on the interest the appellant is liable to pay interest for the period of delay in payment of differential duty it is found that once the differential duty is paid consequentially the interest for the delayed payment need to be paid hence the interest on delayed payment of duties in these two show cause notices was rightly confirmed by the Adjudicating and the Appellate authorities and is tenable. Conclusion - Reversal of unutilized Cenvat credit negates interest liability. Interest is payable on delayed differential duty payments. The penalty under Rules 25 of Central Excise Rules 2002 is set aside. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the appellant is liable to pay interest and can be imposed with a penalty if the Cenvat credit is reversed before utilization.
• Whether the appellant is liable to pay interest and penalty for the delay in payment of differential excise duty due to the inclusion of terminal charges in the assessable value and retrospective price revision of petroleum products.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability for Interest and Penalty on Reversal of Cenvat Credit

• Relevant legal framework and precedents: The legal framework involves Section 11AB of the Central Excise Act, 1944, and Rule 14 of the Cenvat Credit Rules, 2004. The appellant relied on the precedent set by the High Court of Karnataka in CCE Vs. Bill Forge Pvt. Ltd., which held that if Cenvat credit is reversed before utilization, it amounts to not taking credit, thus no interest liability arises.
• Court's interpretation and reasoning: The court accepted the reasoning from the precedent that reversing Cenvat credit before utilization negates the need to pay interest, as it is equivalent to not having availed the credit.
• Key evidence and findings: The appellant had reversed the Cenvat credit before its utilization, aligning with the decisions in similar cases.
• Application of law to facts: Based on the facts and the legal precedent, the court concluded that the appellant is not liable to pay interest or penalty for the reversal of unutilized Cenvat credit.
• Treatment of competing arguments: The court dismissed the respondent's argument for imposing interest and penalties, relying on established legal interpretations and precedents.
• Conclusions: The court set aside the imposition of interest and penalties related to the show-cause notice dated 04.12.2006.

Issue 2: Liability for Interest and Penalty on Differential Duty Payment

• Relevant legal framework and precedents: The relevant legal provisions include Rule 25 of the Central Excise Rules, 2002. The court also referenced the Supreme Court's decision in Steel Authority of India, which confirmed the obligation to pay interest on delayed duty payments.
• Court's interpretation and reasoning: The court reasoned that since the differential duty was paid after the clearance of goods, interest on the delayed payment was justified. However, the imposition of penalties was deemed unwarranted given the circumstances.
• Key evidence and findings: The appellant paid the differential duties but contested the interest and penalties. The court found no statutory limitation on interest payment and no interest on interest.
• Application of law to facts: The court applied the law to confirm the interest liability but set aside the penalties, considering the factual context and absence of intent to evade duty.
• Treatment of competing arguments: The court balanced the appellant's arguments against the respondent's reliance on statutory provisions and precedents, ultimately siding with the appellant on penalty issues.
• Conclusions: The court upheld the interest liability on the differential duty but set aside the penalties imposed under Rule 25 for the show-cause notices dated 27.02.2006 and 20.09.2006.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "If the Cenvat credit is reversed before utilization of credit, it amounts to not taking credit, no liability to pay interest."
• Core principles established: Reversal of unutilized Cenvat credit negates interest liability. Interest is payable on delayed differential duty payments, but penalties require specific justification.
• Final determinations on each issue: The court set aside the interest and penalties related to the reversal of Cenvat credit (04.12.2006). It upheld the interest on differential duty payments but set aside the penalties (27.02.2006 and 20.09.2006).

The appeal was partially allowed, providing consequential relief as per the law.