2014 (2) TMI 497 - AT - Central Excise

Reversal of CENVAT Credit - Credit availed in routine manner - invoking extended period of limitation after reversal of credit - Held that - appellant took the credit on 31.03.2007 and reversed the same on 30.04.2008. As per the appellant, the credit was taken by their employees in a routine manner without realising that the same was not available to them. On being pointed out by the audit, the appellant immediately reversed the same. It is also a fact that the credit remained unutilised and such as they were paper entry only during the relevant period. Where the credit remains unutilised and on paper entry only, the same would not attract any interest or penalty - demand barred by limitation. Admittedly, the excess credit taken by the appellant was reversed on 30.04.2008 and as such the Revenue was in the knowledge of the same. In spite of that, issuance of Show Cause Notice in the year 2010 by invoking extended period of limitation was not justifiable - Decided in favour of assessee.

Summary

Issues:
- Admissibility of CENVAT credit on input services used for trading of goods
- Reversal of CENVAT credit by the appellant
- Imposition of interest and penalty
- Interpretation of legal precedents regarding unutilized credit
- Barred demand by limitation period

Analysis:

The appellant wrongly availed CENVAT credit on input services used for trading of goods, amounting to Rs.83,414, on 31.03.2007. Upon audit discovery, the appellant accepted the inadmissibility of the credit and reversed it on 30.04.2008, stating that it was taken inadvertently and remained unutilized. The original adjudicating authority dropped proceedings based on the reversal, citing a High Court ruling that waived penalties and interest in such cases.

However, the Revenue appealed to the Commissioner (Appeals) who, noting a Supreme Court reversal of the High Court decision, imposed interest and penalties equal to the credit amount. The appellant argued that the credit was a mere paper entry, referencing a Karnataka High Court decision that penalties and interest do not apply to unutilized credits. The Tribunal also set aside interest and penalties in similar cases.

The Tribunal found in favor of the appellant, emphasizing that the credit reversal was prompt, the credit remained unutilized, and legal precedents supported the appellant's position. Moreover, the demand was time-barred, as the excess credit was reversed in 2008, and the Show Cause Notice issued in 2010 fell outside the limitation period. Citing a Delhi High Court ruling, the Tribunal concluded that no interest liability or penalties could be imposed due to the limitation period.

Consequently, the Tribunal set aside the order, allowing the appeal and providing consequential relief to the appellant based on the foregoing analysis. The stay petition and appeal were disposed of accordingly in favor of the appellant.