2016 (8) TMI 6 - AT - Central Excise

Claim of interest on reversal of Canvet Credit - credit availed on the Volvo Tippers procured from Volvo - Held that - he mere taking of non-entitled credit by way of a book entry will in no way cause financial adversity to the exchequer, unless such ineligible credit comes to be utilized. We therefore find that by stretch of imagination can the act of taking ineligible credit, however reversing the entire wrongly taken credit without utilization, be considered as creating a right for the government for forbearance or detention of money, or for that matter, loss suffered because the government had not that use. When credit has been solely taken but not utilized, the effect thereof is as if credit was never taken, since book entry availment of CENVAT account cannot be ever treated as a debit entry. We therefore conclude that only when a debit occurs to such CENVAT account by way of utilization, would the exchequer be adversely affected, since otherwise the assessee would have to pay from account current or cash instead of adjusting from CENVAT account. By implication, in such a scenario, when there is no adverse deprivation to the exchequer, there cannot be a claim of interest that can be latched on to the assessee. Levy of penalty - Held that - The proposal in the show cause notice for imposition of penalty should have been accepted and confirmed in toto or not at all. The adjudicating authority cannot travel beyond the SCN. This being the case, and especially taking note of the adjudicating authority s own findings that there is no suppression, fraud etc., the said proposal in the notice for imposition of penalty under Rule 15 read with S 11 AC ibid will necessarily have to be dropped. In consequence the penalty of ₹ 60 lakhs imposed by adjudicating authority as aforesaid under Rule 15 of the Rules will require to be set aside, which we hereby do. Decided in favor of assessee.

Summary

Issues Involved:
1. Denial of CENVAT Credit.
2. Imposition of interest on ineligible CENVAT credit.
3. Imposition of penalties under Rule 15 of the CENVAT Credit Rules, 2004 and Section 77 of the Finance Act, 1994.
4. Appeal by the Department against the reduction of penalty.

Detailed Analysis:

1. Denial of CENVAT Credit:
The Assessee engaged in providing various mining services and procured Volvo Tippers for transportation activities, taking credit of the excise duty paid. A Show Cause Notice proposed to deny the CENVAT Credit of ?6,60,61,607/- availed on the Volvo Tippers. The Order-in-Original confirmed the demand for the same amount as ineligible credit and ordered its repayment. The Tribunal upheld this decision, treating the credit taken by the assessee as ineligible.

2. Imposition of Interest on Ineligible CENVAT Credit:
The Tribunal examined whether interest liability arises for ineligible CENVAT credit availed but not utilized and subsequently reversed. It was concluded that mere taking of non-entitled credit by way of a book entry does not cause financial adversity to the exchequer unless such credit is utilized. The Tribunal relied on various High Court and Supreme Court judgments, including the case of CCE, Mumbai-I Vs Bombay Dyeing & Manufacturing Company Ltd., which held that credit taken but reversed before utilization amounts to not taking credit. Therefore, no interest liability accrues if the credit is reversed without utilization.

3. Imposition of Penalties:
The Show Cause Notice proposed penalties under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944. The adjudicating authority imposed a penalty of ?60,00,000/- under Rule 15(1) and ?1,000/- under Section 77 of the Finance Act, 1994. The Tribunal found that the adjudicating authority did not find grounds for imposing penalties under Section 11 AC or Rule 15(2) and thus should have dropped the proposal for penalties under Rule 15 read with 11 AC. Consequently, the penalty of ?60,00,000/- was set aside, but the penalty of ?1,000/- under Section 77 was upheld.

4. Appeal by the Department Against Reduction of Penalty:
The Department appealed against the reduction of the penalty to ?60,00,000/- under Rule 15 of the CENVAT Credit Rules, 2004. The Tribunal dismissed the Department's appeal, finding no grounds to interfere with the adjudicating authority's decision to limit the penalty provisions.

Conclusion:
The Tribunal partly allowed the assessee's appeal by setting aside the penalty of ?60,00,000/- and confirming that no interest liability would accrue on the reversed ineligible credit. The Department's appeal against the reduction of the penalty was dismissed. The final decision upheld the ineligibility of the CENVAT credit but provided relief on the imposition of interest and penalties.