2010 (4) TMI 589 - AT - Central Excise

Cenvat credit on damaged goods Availed and - Reversed Interest on ineligible cenvat credit availed - credit which has been taken by them was never utilized and cannot be termed as ineligible credit Credit reversed before demand of interest Held that - demand of interest on such amount of reversed credit is not sustainable.

Summary

Issues:
1. Availment of ineligible cenvat credit on damaged inputs.
2. Demand of interest and penalty under Cenvat Credit Rules, 2004.
3. Adjudication of the issue by lower authorities.
4. Appeal against the Order-in-Appeal No. 24/2009.

Analysis:
1. The case involved the appellant availing cenvat credit on damaged inputs during 2005-06 & 2006-07, which they later reversed. The issue was whether the availed credit was ineligible, leading to contravention of Rule 3 of the Cenvat Credit Rules, 2004.
2. A show cause notice was issued proposing appropriation of the reversed amount, demanding interest, and penalty under Rule 15(1) of the Rules. The lower authorities adjudicated the issue, appropriating the reversed amount and demanding interest but dropping the penalty proceedings.
3. The appellant appealed against the order-in-original, challenging the demand of interest. The ld. Commissioner (Appeals) upheld the order-in-original, leading to the present appeal before the Appellate Tribunal.
4. The appellant argued that the availed credit was not utilized and should not be termed as ineligible. They cited precedents to support their case, emphasizing the timing of the credit reversal and the absence of fraud or suppression of facts.
5. The respondent, on the other hand, relied on a different precedent to support the applicability of interest liability without a prescribed time limit for recovery under the Central Excise Act.
6. After considering the submissions and perusing the records, the Tribunal found that the damaged inputs were noticed upon arrival at the factory premises. The appellant had used some inputs after processing, while the unusable inputs were scrapped, and the credit was reversed.
7. The Tribunal held that the demand of interest was improper, citing precedents where demands of interest were found to be barred by limitation without allegations of fraud or suppression of facts. The lower authorities had not invoked Section 11AB for interest imposition, and Rule 14 of the Cenvat Credit Rules, 2004, was found inapplicable.
8. Consequently, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief. The decision was based on the inapplicability of interest demand due to the circumstances of credit reversal and usage of damaged inputs.

This detailed analysis covers the issues of availing ineligible cenvat credit on damaged inputs, the demand of interest and penalty, adjudication by lower authorities, and the final appeal outcome before the Appellate Tribunal.