2010 (3) TMI 512 - AT - Central Excise

Interest Cenvat - The issue in this case relates to payment of interest in respect of Cenvat credit taken but not utilized. Revenue placing reliance on C.B.E.&C. Circular No. 897/17/2009-CX., dated 3.9.2009 clarifying interest payable. Held that in the light of the decision of Ind-Swift Laboratories Ltd. v. UOI 2009 (7) TMI 98 - PUNJAB & HARYANA HIGH COURT , holding that no interest chargeable.

Summary

Issues: Payment of interest on unutilized Cenvat credit

In this case, the main issue revolves around the payment of interest in relation to Cenvat credit taken but not utilized. The authorities below held that interest is payable on wrongly taken Cenvat credit, even if not utilized, citing Rule 14 of the Cenvat Credit Rules, 2004, and Circular No. 897/17/2009-CX. The department supported this position based on the wording of Rule 14. However, the appellant relied on a recent decision of the Hon'ble High Court of Punjab & Haryana, which interpreted that interest should only be payable when Cenvat credit is wrongly utilized, not just taken. The Tribunal considered the Board's Circular, the High Court's decision, and a previous Supreme Court decision, ultimately holding that interest cannot be charged on unutilized Cenvat credit. Consequently, the impugned order was set aside, and the appeal was allowed.

The Tribunal analyzed the conflicting views on the interpretation of Rule 14 of the Cenvat Credit Rules, 2004. The department argued for the payment of interest on wrongly taken Cenvat credit, regardless of its utilization status, emphasizing the specific wording of Rule 14. On the other hand, the appellant relied on a decision of the Hon'ble High Court of Punjab & Haryana, which held that interest should only apply when the credit is both taken and utilized wrongly. The Tribunal considered these arguments and the relevant legal provisions to determine the correct interpretation of the rule.

The Tribunal scrutinized the Board's Circular and a decision of the Hon'ble High Court of Punjab & Haryana to resolve the issue of interest on unutilized Cenvat credit. The Circular supported the department's stance on charging interest on wrongly taken credit, while the High Court's decision emphasized that interest should only be payable when the credit is misutilized. The Tribunal noted a previous Supreme Court decision, which the Circular dismissed as a decision rather than a judgment. Despite this distinction, the Tribunal emphasized the importance of respecting Supreme Court decisions and ultimately aligned with the High Court's interpretation, ruling that interest cannot be levied on unutilized Cenvat credit.

The Tribunal considered the implications of the Board's Circular, the High Court's decision, and a previous Supreme Court ruling on the issue of interest on Cenvat credit. While acknowledging the Circular's position and the distinction made regarding the Supreme Court decision, the Tribunal ultimately followed the High Court's interpretation. By aligning with the High Court's view that interest should only apply to wrongly utilized credit, not just taken credit, the Tribunal concluded that the appellants were not liable to pay interest on the unutilized Cenvat credit. Consequently, the impugned order was set aside, pre-deposit requirements were waived, and the appeal was allowed.