2017 (6) TMI 628 - AT - Central Excise

Liability of interest - wrong availment of CENVAT credit - the appellant had taken the credit, but not utilized the same, and reversed the same prior to the issuance of the SCN - Held that - Board s Circular dated 03.09.2009 states that interest is payable even when credit has not been utilized - the Larger Bench of the Tribunal in the case of J.K.Tyre & Industries Ltd. v. Asst. Commr. of C.Ex., Mysore 2016 (11) TMI 911 - CESTAT BANGALORE held that wrong availment of CENVAT Credit, interest is not payable, if reversed before utilization - Board s Circular dated 03.09.2009 observed that interest is payable even when credit has not been utilized - interest not sustainable. Penalty was imposed for contravention of the Rules and the same is warranted. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Demand of interest and penalty under Rule 15(3) of the Central Excise Rules, 2004.

Analysis:
The appellant appealed against the demand of interest and penalty. The Adjudication order stated that interest is payable even if credit has not been utilized, following a Board's Circular. However, the Tribunal in previous cases held that if the credit is reversed before utilization, interest is not payable. The appellant in this case had reversed the credit upon audit pointing out the error. The Tribunal noted conflicting decisions on this issue by different High Courts and Tribunals. The High Court of Gujarat held that when credit is reversed before utilization, it amounts to not taking credit, and hence, interest is not recoverable. In this case, the appellant reversed the credit promptly upon realizing the error, and as the credit was not utilized, no interest is payable. The penalty under Section 11AC was also found not leviable due to the absence of intention to evade duty.

The Tribunal set aside the demand of interest under Rule 14 of the Cenvat Credit Rules 2004 and the penalty under Section 11AC of the Central Excise Act 1944. The Order-in-Original was upheld with modifications, allowing the appeal on these terms. The judgment emphasized that no interest is payable on unutilized Cenvat Credit, but the penalty imposed for contravention of the Rules was warranted. Therefore, the impugned order was modified to set aside the demand of interest, and the appeal was disposed of accordingly.