2019 (3) TMI 1375 - AT - Central Excise

CENVAT credit - provision of taxable as well as exempt service (trading) - non-maintenance of separate records - Rule 6(3)(1) of CENVAT Credit Rules - demand of interest and penalty - Held that - Prior to the amendment the recovery of interest was permissible when CENVAT credit has been wrongly taken or utilized and in the present case the appellant reversed the CENVAT credit attributable to trading activity and there happened to be a short-reversal amounting to 29, 17/911/- which was reversed by 17/09/2014 - as per the documents placed on record including various returns and CENVAT credit account which shows that the closing credit in the CENVAT credit account was much more than the total amount of credit as wrongly availed and further the said credit was not utilized by the appellant. In view of the decision of Karnataka High Court in the case of Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT which clearly hold that if the CENVAT credit wrongly availed is reversed before utilization then the assessee is not liable to pay interest and penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Recovery of CENVAT credit under Rule 14 of CCR post-17/03/2012, application of Explanation III to Rule 6(3D) of CCR, imposition of penalty under Section 11AC, interpretation of judicial precedents.

Analysis:
The appeal challenged an order rejecting the appellant's appeal and upholding the Order-in-Original by the Commissioner(Appeals). The appellant, engaged in manufacturing and trading, availed CENVAT credit on capital goods, inputs, and input services. The issue arose when the appellant reversed an amount of credit on 17/09/2014, believing it was wrongly taken under Rule 6(3)(1) of CCR. Subsequently, a show-cause notice demanded recovery of &8377; 29,17,911/- under Rule 14 of CCR read with Section 11A(1) of the Central Excise Act, 1944. The Additional Commissioner confirmed this proposal, leading to the present appeal.

The appellant argued that the impugned order was unsustainable as the CENVAT credit was not utilized, and the recovery sought under Rule 14 was incorrect. The appellant contended that once the credit was reversed before utilization, no further recovery could be demanded. Reference was made to Explanation III to Rule 6(3D) of CCR, which the appellant claimed did not justify the recovery. Additionally, the appellant argued against the imposition of penalty under Section 11AC due to the absence of short-levy or short payment of duty. Relevant judicial precedents were cited to support these arguments.

On the other hand, the respondent defended the impugned order, stating that the appellant had agreed to pay under Rule 6, and there was no wrongful availment of credit. The respondent relied on specific decisions to support their stance.

After considering the submissions and relevant legal provisions, the Tribunal found that the appellant had correctly reversed the credit on 17/09/2014, which was wrongly taken under Rule 6(3)(1) of CCR. The recovery sought under Rule 14 was based on an amended provision post-17/03/2012, which required recovery when credit was wrongly taken and utilized. However, in this case, the appellant had reversed the credit before utilization, and the closing credit in the CENVAT account exceeded the wrongly availed amount. Citing legal precedents, including a decision by the Karnataka High Court, the Tribunal concluded that if wrongly availed credit is reversed before utilization, the assessee is not liable to pay interest and penalty. Therefore, the impugned order was set aside, allowing the appeal of the appellant.

This detailed analysis highlights the key legal issues and arguments presented in the judgment, leading to the Tribunal's decision in favor of the appellant.