2018 (12) TMI 302 - HC - Central Excise

Demand of interest on the ineligible credit availed - matter remanded for recalculating their liability in terms of Rule 6(3AA) of the CENVAT Credit Rules, 2004 - Held that - We refrain ourselves from expressing any opinion at this juncture, since the Tribunal remanded the matter to the Adjudicating Authority for de novo consideration to arrive at the net liability of the assessee after calculating the same in terms of Rule 6(3AA) of the said Rules. Since jurisdictional issue has also been raised by the Revenue, the Adjudicating Authority shall also consider the submissions of the Revenue as regards applicability of Rule 6(3AA) of the said Rules during de novo consideration - appeal allowed - decided in favor of Revenue.

Summary

Issues involved:
1. Appeal by Revenue under Section 35G of the Central Excise Act, 1944 against Tribunal's order.
2. Substantial question of law regarding demand of interest on ineligible credit availed by the assessee.
3. Interpretation of Rule 14 of CENVAT Credit Rules, 2004 and Section 11AB of the Central Excise Act, 1944.
4. Applicability of Rule 6(3AA) of CENVAT Credit Rules, 2004 in recalculating liability for trading purposes.

Detailed Analysis:
1. The High Court of Madras heard an appeal by the Revenue against the Customs, Excise and Service Tax Appellate Tribunal's order. The appeal raised a substantial question of law concerning the demand for interest on ineligible credit availed by the assessee under Section 35G of the Central Excise Act, 1944.
2. The main issue revolved around the interpretation of Rule 14 of the CENVAT Credit Rules, 2004, and Section 11AB of the Central Excise Act, 1944. The High Court referred to a previous Division Bench judgment in CCE Vs. M/s.Sundaram Fastners Limited, where it was clarified that interest is payable when CENVAT credit is utilized wrongly, regardless of whether the credit has been reversed.
3. The Court rejected the assessee's argument that reversal of credit should not attract interest, citing previous judgments by the Allahabad High Court, Karnataka High Court, and the Supreme Court. The High Court emphasized that Rule 14 clearly states that interest is payable when credit is taken or utilized wrongly, or erroneously refunded.
4. Additionally, the Court addressed the applicability of Rule 6(3AA) of the CENVAT Credit Rules, 2004, concerning the recalculated liability for trading purposes. The Tribunal had remanded the matter to the Adjudicating Authority for reconsideration based on this rule, leading to a jurisdictional issue raised by the Revenue.

In conclusion, the High Court allowed the Revenue's appeal, directing the Adjudicating Authority to recalculate the assessee's liability in accordance with Rule 6(3AA) of the CENVAT Credit Rules, 2004, and consider the Revenue's submissions on the jurisdictional issue.