2013 (7) TMI 567 - AT - Central Excise

Interest under Section 11AB and Penalty under Section 11AC of the Central Excise Act, 1944 on wrong availment of Cenvat Credit There was wrong availment of Cenvat Credit on certain Capital Goods - Held that - Supreme Court decision in the case of Ind-Swift Laboratories Ltd. 2011 (2) TMI 6 - Supreme Court was considered and it was held, that the interest would be payable from the date Cenvat credit is taken or utilized wrongly - The said decision was considered by Hon ble Karnataka High Court in the case of Commissioner of Central Excise & Service Tax Bangalore vs. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT as also in the subsequent decision in the case of CCE, Bangalore vs. Pearl Insulation Ltd. 2012 (11) TMI 912 - KARNATAKA HIGH COURT and it was held that said Supreme Court decision relate to taking of credit or utilizing the same wrongly and cannot apply to availment of Cenvat credit in the account books - Hon ble Karnataka High Court, in ST Bangalore V/s Bill Forge Pvt. Ltd. held that the assessee had not taken or utilized the Credit but only availed wrong credit in their account books and on pointing out the mistake, immediately reversed the entry. As no benefit of wrong entry in account books was taken, interest is not payable Decided against the Revenue. Held that -The show cause notice does not attribute any malafide intention to the appellant so as to invoke the penal provisions of Section 11AC Also, there has to be element supported by evidence to invoke the provisions of Section 11 AC- Decided against the Revenue.

Summary

Issues:
1. Whether interest on wrongly availed credit reversed before utilization attracts penalty?
2. Whether penalties for availing inadmissible credit are justified when the credit is reversed immediately upon being pointed out?

Analysis:

Issue 1:
The judgment addresses the dispute regarding interest on wrongly availed credit of Rs.5,557/- which was reversed by the assessee before utilization. The Commissioner (Appeals) held that no interest would be leviable as the credit was reversed before utilization, but imposed penalties for availing inadmissible credit. The Tribunal referred to the Supreme Court decision in Union of India vs. Ind-Swift Laboratories Ltd., which stated that interest would be leviable from the date of wrong availment of credit. However, the Karnataka High Court interpreted this decision to apply only when credit is taken or utilized wrongly, not for mere availment in account books. Citing relevant case law, the Tribunal concluded that interest was not payable in this case as the credit was reversed promptly without any benefit derived. Consequently, the Revenue's appeal was rejected, upholding the Commissioner (Appeals) decision on interest.

Issue 2:
Regarding the imposition of penalties for availing inadmissible credit, the Tribunal considered the argument that once the credit was reversed, it was as if it was never taken, citing Supreme Court and Allahabad High Court decisions. The Revenue contended that the reversal indicated malafide intent, justifying penalties. However, the Tribunal found that the appellant accepted the mistake upon audit notification and promptly rectified it without malafide intentions. It emphasized that penal provisions require evidence of malafide, which was absent in this case. Therefore, the Tribunal set aside the penalties imposed on the assessee, concluding that there was no justification for penalizing them. As a result, the Revenue's appeals were rejected, and the assessee's appeals were allowed.

In summary, the judgment clarifies the applicability of interest on wrongly availed credit reversed before utilization and the justification for penalties in cases of availing inadmissible credit. The decision provides a nuanced interpretation of legal precedents and highlights the importance of prompt corrective actions by taxpayers in addressing inadvertent errors in availing credits to avoid penalties.