2008 (9) TMI 519 - AT - Service Tax

Interest Cenvat Credit - The respondent a manufacturer of nylon multifilament yarn was availing CENVAT credit on inputs and capital goods and utilizing for payment of excise duty for clearance of the final products. The original authority has held in respect of credit wrongly taken and in respect of credit which was required to be reversed as on 19.07.2004 but revered subsequently interest is payable irrespective of the fact whether the said amount was utilised or not. Held that interest will be come payable only in respect of credit wrongly taken and which has been utilized.

Summary

Issues:
- Availing CENVAT credit on inputs and capital goods
- Opting for exemption under Notification No. 30/2004
- Reversal of credit due to opting out of the scheme
- Payment of interest on wrongly taken credit
- Interpretation of Rule 12 of the CENVAT Credit Rules

Analysis:

1. The respondent, a manufacturer of 'nylon multifilament yarn,' availed CENVAT credit on inputs and capital goods for excise duty payment. They also sent some inputs for job work. After opting for exemption under Notification No. 30/2004, they had to reverse some credit taken on ineligible documents. The issue was whether interest is payable on the reversed credit, regardless of utilization.

2. The original authority held that interest is payable on wrongly taken credit, even if not utilized, as per Rule 12 of the CENVAT Credit Rules. The Commissioner (Appeals) allowed the appeal, stating that since the credit was reversed upon department's notice without a show-cause notice, no interest was due.

3. The department argued that interest is payable on any wrongly taken credit, citing a High Court decision. The respondent contended that interest is not applicable if credit was not utilized, referring to a High Court decision affirmed by the Supreme Court.

4. The Tribunal analyzed that unutilized credit does not earn interest, and interest should apply only to wrongly taken and utilized credit. In cases where credit was not utilized, no benefit accrued to the assessee until detected and reversed, thus no interest liability should be imposed.

5. The Tribunal ruled that interest is payable only on wrongly taken and utilized credit. In situations where an assessee opts for exemption, adjustments on the CENVAT account do not warrant interest payment if sufficient credit was available during the exemption period.

6. Due to lack of specific comments on the respondent's claim of having sufficient credit, the Tribunal remitted the issue to the original authority to determine any interest payable based on the Tribunal's interpretation of the rules and relevant decisions.