2013 (11) TMI 1356 - AT - Service Tax

Availment of CENVAT Credit - finished goods supplied to another PSU - Supply not made directly to MOD - Assessee contends that clearances are not exempted under Notification No.63/95 dt 16.3.1995 - Therefore, assessee availed CENVAT Credit - Whether in terms of Rule 14 of the Cenvat Credit Rules, 2004, the appellant can be said to have taken credit wrongly - Held that - appellant has definitely a case for seeking clarification from the department. In March, 2010, appellant sought clarification from the department to know whether the clearance of goods to M/S BEL are exempted from payment of excise duty in terms of notification. In the absence of the clarification from the department, they took CENVAT credit during the intervening period September 2010 to March 2011. They had to take cenvat credit in September, 2010 since some of the job workers did not return all the inputs within 180 days and they had to reverse the credit. To reverse the credit, they had to take credit. When there was no clarification received from the department till March, 2011, the assessee had no option but to clear two consignments in March 2011 on payment of excise duty of ₹ 90,94,851/- by utilising the Cenvat credit. On getting the clarification from TRU in April 2011, the appellant reversed the entire amount of Cenvat credit. Appellant could not have acted any other way than the way they did. In the circumstances, holding that credit was not admissible and was taken without eligibility and therefore asking them to pay interest was not correct. Moreover, any assessee, if he has any doubt, has a right to ask the department and such action is not contrary to the provisions of law. Further, in the circumstances of this case, it cannot be said that the credit had been taken by the appellant wrongly. When credit is not taken wrongly, question of payment of interest does not arise in terms of provisions of rule 14 of CCR 2004 - Decided in favour of assessee.

Summary

Issues: Liability to pay interest on Cenvat credit reversal.

Analysis:
The case involved a Public Sector Undertaking (PSU) working under the Ministry of Defence regarding the liability to pay interest on the reversal of Cenvat credit. The appellant believed that their clearances were not exempted under Notification No.63/95 as the finished goods were supplied to another PSU, not directly to the Ministry of Defence. The appellant sought clarification from the department regarding the eligibility for exemption. The appellant started availing Cenvat credit from September 2010 onwards and reversed the credit when inputs sent for job-work were not returned within 180 days. The Department issued a show-cause notice demanding reversal of a specific amount along with interest and proposing a penalty under Section 11AC. The Adjudicating authority dropped the proposed penalty but confirmed the demand for interest on the Cenvat credit taken.

The main issue before the Tribunal was whether the appellant was liable to pay interest. The Tribunal noted that the appellant sought clarification from the department regarding the eligibility for exemption before availing the Cenvat credit. The Tribunal emphasized that the appellant had a valid reason for seeking clarification and had acted in accordance with the circumstances. It was highlighted that under Rule 14 of the Cenvat Credit Rules, 2004, if the credit was not taken wrongly, the question of payment of interest did not arise. The Tribunal concluded that the appellant did not take the credit wrongly and therefore was not liable to pay interest. The Tribunal held that the appellant had the right to seek clarification from the department, and in this case, the credit was not taken erroneously. Consequently, the appeal was allowed, and the appellant was not required to pay interest on the Cenvat credit reversal.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the appellant had a valid reason for seeking clarification from the department before availing the Cenvat credit. Since the credit was not taken wrongly, the Tribunal held that the appellant was not liable to pay interest on the Cenvat credit reversal. The Tribunal emphasized that the appellant's actions were in line with the provisions of the law, and seeking clarification from the department was not improper. Therefore, the appeal was allowed, granting relief to the appellant in this matter.