2010 (3) TMI 412 - HC - Central Excise

Interest and Penalty- the manufacturer has taken CENVAT Credit on the capital goods received for installation of their plant and machinery. Later on manufacturer revised the credit wrongly taken by him. Authority demanded interest and penalty. Tribunal set aside the penalty and interest as the credit was revised. Held that- the CENVAT Credit has been reversed and the same has not been utilized for the payment of excise duty, thus, there is no question of demanding any interest and levying any penalty.

Summary

Issues:
Recoverability of interest under Rule 14 of CENVAT Credit Rules, 2004 and imposability of penalty under Rule 15(1) of CENVAT Credit Rules, 2004 when inadmissible credit is reversed before utilization.

Analysis:
The appeal before the High Court challenged the order of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi, regarding the recoverability of interest and imposability of penalty under the CENVAT Credit Rules, 2004. The main question raised was whether interest is not recoverable and penalty not imposable if the inadmissible credit has been reversed before utilization.

Upon reviewing the Tribunal's order, the High Court found no error in the decision. The case involved a manufacturer who had taken CENVAT Credit on capital goods but later realized the credit was wrongly taken. The manufacturer then reversed the entry of the credit and did not utilize it for paying excise duty. Despite this, the Central Excise Authority demanded interest and imposed a penalty of Rs. 10 lakhs for the alleged wrongful credit.

The Tribunal, however, set aside the demand for interest and penalty, stating that since the wrongly taken CENVAT Credit was reversed and not utilized, there was no basis for imposing interest or penalty. The High Court concurred with the Tribunal's decision, emphasizing that the reversal of CENVAT Credit before utilization precluded the demand for interest and penalty.

In conclusion, the High Court dismissed the appeal, noting that the Tribunal's decision was based on factual findings, and no legal question arose from the case. The Court reiterated that when inadmissible credit is reversed and not utilized for duty payment before any show cause notice, there is no justification for demanding interest or levying a penalty. Thus, the appeal was deemed meritless and dismissed accordingly.