Case Law Details
Commissioner of Central Excise Vs Gautam Ship Breaking Ind. Ltd. (Gujarat High Court)
Interest not chargeable on Amount of MODVAT credit, which was lying unutilized and which has been ordered to be reversed
The case of Commissioner of Central Excise vs. Gautam Ship Breaking Ind. Ltd. before the Gujarat High Court revolves around the issue of whether interest is chargeable on the amount of MODVAT (Modified Value Added Tax) credit that was lying unutilized and had been ordered to be reversed. Let’s delve into the details.
The appeal, filed under section 35G of the Central Excise Act, 1944, stemmed from an order dated 06.04.2005 by the Customs, Excise and Service Tax Appellate Tribunal, West Zone Bench, Mumbai (referred to as “the Tribunal” henceforth). The Gujarat High Court admitted the appeal and framed a substantial question of law:
“Whether the interest is chargeable under Rule 57AH of Central Excise Rules 1944 (now Rule 12 of the Central Excise Rules, 2002) on the credit wrongly taken?”
It’s noted that the issue was previously addressed in the case of Commissioner of Central Excise vs. Gupta Steel, and the present case was considered to be covered by that decision. However, as there was a Special Leave Petition (SLP) pending before the Supreme Court, the appeal was admitted.
The counsel for the appellant referred to a Supreme Court order dated October 24, 2018, wherein, due to the low tax effect involved, the appeal in a similar case was declined to be entertained. Consequently, the question of law was to be agitated in an appropriate case.
The Tribunal, in the present case, ruled that fuel oil and foodstuff on board a ship are not inputs required directly or indirectly in relation to the manufacture of scrap emerging from shipbreaking. Therefore, MODVAT credit was deemed inadmissible to the appellant. Moreover, it held that charging interest on the unutilized amount of credit was unsustainable.
The Gujarat High Court cited its previous decision in the Gupta Steel case, where it was held that interest cannot be levied on the amount of credit ordered to be reversed. The Tribunal’s order in the current case was found to be consistent with this precedent.
The Court emphasized that since the issue was already settled in the Gupta Steel case, no substantial question of law arose in the present appeal. Thus, the appeal was dismissed.
In essence, the crux of the matter lies in the inadmissibility of MODVAT credit for certain inputs and the subsequent reversal of such credit. The Court reaffirmed that interest cannot be charged on the unutilized amount of credit that has been ordered to be reversed, as per established legal precedents.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr. Hirak Shah for learned advocate Mr. Nikunt K. Raval for the appellant.
2. By this appeal under section 35G of the Central Excise Act, 1944 arising out of order dated 06.04.2005 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zone Bench, Mumbai (For short “the Tribunal”), following substantial question of law is admitted by this Court vide order dated 21.09.2006:
“Whether the interest is chargeable under Rule 57AH of Central Excise Rules 1944 (now Rule 12 of the Central Excise Rules, 2002) on the credit wrongly taken?”
3. While admitting the appeal, this Court observed that the issue is covered by the decision of this Court in case of Commissioner of Central Excise vs. Gupta Steel (Tax Appeal No.1145 of 2005), however, as SLP preferred by the appellant was pending before the Hon’ble Supreme Court, the appeal was admitted by this Court.
4. Learned advocate Mr.Hirak Shah for learned advocate Mr. Nikunt Raval for the appellant submitted that the Hon’ble Supreme Court by order dated October 24, 2018, considering the low tax effect involved in the case declined to entertain the appeal in case of Commissioner of Central Excise Bhavnagar v. M/s Gupta Steel and dismissed the Civil Appeal No. 10821 of 2010 keeping the question of law to be agitated in appropriate case.
5. In the present case, the Tribunal has held as under :
“2. The authorities below upheld that the fuel oil and foodstaff on board ship are not inputs required directly or indirectly or in relation to manufacture of scrap emerging from the breaking of the ship. On this basis, it has been held that modvat credit is not admissible to the appellant. It has also been held that charging of interest on the amount of credit lying unutilised is not sustainable.”
6. This Court in case of Commissioner of Central Excise vs. Gupta Steel while dealing with a similar question has held as under:
“2. Three show-cause notices under Rule 57AH (now Rule 12 of Cenvet Rules) read with Section 11A and Section 38-A of the Central Excise Act, 1944 and interest under Section 11AB of the Central Excise Act, 1944, were issued to the respondent-assessee for having wrongly taken credit of additional custom duty paid on bunker, foodstuff etc. The Assistant Commissioner confirmed the demand raised in the show cause notices vide order in Original No.BVR/46- 48/2003, dated March 31, 2003. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner(A), Central Excise, Rajkot, who rejected the appeal by order dated July 18, 2003. Thereupon, the assessee preferred an appeal before CESTAT, WZB, Mumbai. The appeal was dismissed by order dated October 31, 2003. Thereafter, the assessee filed an application for rectification of mistake, and pointed out that points regarding non-chargeability of interest on unutilized cenvat credit were not considered. The CESTAT, Mumbai allowed the application by order dated January 4, 2005. Aggrieved by the said order, the appellant has filed the instant appeal.
3. This Court has heard J.M.Malkan, learned Assistant Solicitor General of India, at length and in detail.
4. The finding recorded by the Tribunal is as under :
“We have considered the rival submissions. We find that while it has been held that fuel oil and food stuff on board ship are not inputs required directly or indirectly or in relation to manufacture of scrap emerging from the breaking of the ship, and therefore, not eligible for modvat credit, there is no specific finding on whether interest can be levied on the amount of credit, which has been directed to be reversed. The direction for reversal itself would establish the correctness of the contention of the submissions that the credit was not availed by them but lying unitized. In these circumstances charging of interest on the amount of credit lying unutilized is not correct in law. We, therefore hold that the applicants are not liable to pay interest on the Amount of credit, which was lying unutilized and which has been ordered to be reversed.”
The learned counsel for the appellant could not point out any infirmity in the order referred to above. Under the circumstances, the substantial question of law, as suggested by the appellant, does not arise for consideration of this Court. The appeal, therefore, fails and is dismissed.”
7. In view of above, we are of the opinion that no question of law much-less any substantial question of law arises from the order of the Tribunal as the issue is squarely covered in favour of respondent assessee by order passed in Tax Appeal No.1145 of 2005 in case of Gupta Steel (supra).
8. The appeal is accordingly dismissed.
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