2019 (4) TMI 1686 - HC - Central Excise

Liability of interest on reversal of irregular CENVAT Credit - credit availed but not utilized - Amendment to Rule 14 of Cenvat Credit Rules, 2004 is prospective or retrospective - HELD THAT - The Appellant in the present case was fully aware that the Appellant was manufacturing not only excisable goods, but also non-excisable goods but availed of the Cenvat credit for the entire inputs required to be used for not only excisable goods, but also for non-excisable goods at the threshold and did not reverse the Cenvat credit taken by it, though it had used the inputs also for nonexcisable goods. The Appellant reversed the Cenvat credit only after the Audit Department of the Respondent brought these facts to the notice of the Appellant. Rule 14 of the Cenvat Credit Rules, thus, was clearly attracted to the facts of this case during the relevant financial years which were subject-matter of this proceeding. In our view, even if the Appellant had not utilized such Cenvat credit, ultimately, since the Appellant had admittedly availed of the Cenvat credit on the entire inputs knowingly well that the entire inputs would not be used exclusively for excisable goods, the Appellant was liable to pay interest under Rule 14 of the Cenvat Credit Rules. The said amendment to Rule 14 of the Cenvat Credit Rules, 2004, vide Notification dated 17 March 2012 would apply only with prospective effect and not with retrospective effect. No such issue was raised by the Appellant before the Commissioner Customs and Central Excise, Goa and also before the CESTAT. Be that as it may a plain reading of the said Notification dated 17 March 2012 clearly indicates that such amendment was applicable only with prospective effect. It is also an admitted position that the notice of demand was issued by the Respondent upon the Appellant much prior to the date of said Notification dated 17 March 2012. No benefit of such amendment thus can be availed of by the Appellant. The said substantial question of law is answered accordingly. Appeal dismissed - decided against appellant.

Issues Involved:

1. Demand of interest on incorrectly taken but not utilized Cenvat credit.
2. Demand of interest on inadmissible Cenvat credit reversed without utilization.
3. Prospective or retrospective application of the amendment to Rule 14 of Cenvat Credit Rules, 2004.
4. Application of the Apex Court's decision in Ind-Swift Laboratories to the present facts.
5. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004.

Detailed Analysis:

Issue 1: Demand of interest on incorrectly taken but not utilized Cenvat credit
The court examined whether the Appellate Tribunal was justified in confirming the demand of interest on Cenvat credit that was incorrectly taken but not utilized. The court referred to Rule 14 of the Cenvat Credit Rules, 2004, which states that interest is recoverable when Cenvat credit is "taken or utilized wrongly or has been erroneously refunded." The court cited the Supreme Court's decision in Union of India vs. Ind-Swift Laboratories Ltd., which held that interest is payable if Cenvat credit is taken wrongly, regardless of its utilization. The court concluded that the Appellant was liable to pay interest even if the credit was not utilized.

Issue 2: Demand of interest on inadmissible Cenvat credit reversed without utilization
The court considered whether the Appellant was liable to pay interest on inadmissible Cenvat credit that was reversed without utilization. The court noted that the Appellant had taken credit on common inputs used for both excisable and non-excisable goods but did not reverse the credit for non-excisable goods until prompted by an audit. The court held that the Appellant's failure to reverse the credit initially constituted a contravention of the Cenvat Credit Rules, making them liable for interest under Rule 14.

Issue 3: Prospective or retrospective application of the amendment to Rule 14 of Cenvat Credit Rules, 2004
The court addressed whether the amendment to Rule 14 by Notification dated 17 March 2012, which changed "taken or utilized wrongly" to "taken and utilized wrongly," applied retrospectively. The court held that the amendment was prospective and did not apply to the assessment years in question. The court emphasized that the demand notice was issued before the amendment, and thus, the Appellant could not benefit from the amended rule.

Issue 4: Application of the Apex Court's decision in Ind-Swift Laboratories to the present facts
The court evaluated whether the decision in Ind-Swift Laboratories was applicable to the present case. The court found that the principles laid down in Ind-Swift Laboratories, which interpreted Rule 14 to impose interest on wrongly taken Cenvat credit regardless of utilization, were directly applicable. The court rejected the Appellant's argument that the facts of Ind-Swift Laboratories were different, affirming that the decision was relevant and binding.

Issue 5: Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004
The court examined the justification for imposing a penalty of ?50,000 on the Appellant under Rule 15 of the Cenvat Credit Rules, 2004. The court noted that the Appellant had knowingly availed of Cenvat credit for inputs used in non-excisable goods and only reversed the credit after an audit. The court upheld the penalty, finding no infirmity in the orders passed by the Commissioner Customs and Central Excise and the CESTAT.

Conclusion:
The court dismissed the appeal, affirming the Tribunal's decision on all substantial questions of law. The Appellant was held liable for interest and penalty as per the provisions of the Cenvat Credit Rules, 2004, and the Central Excise Act, 1944. The court concluded that the amendment to Rule 14 was prospective and did not apply to the case, and the principles from Ind-Swift Laboratories were correctly applied.

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