Interest not leviable when wrongly availed Cenvat credit is not utilized

National Aluminium Company Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)

CESTAT Kolkata held that as per substituted provisions of Rule 14 of the CENVAT Credit Rules, interest is not leviable where wrongly availed credit is only taken but not utilized.

Facts- Due to a clerical error, the Appellant had inadvertently taken CENVAT Credit on duty paid documents twice. On realising its mistake, the Appellant suo-moto reversed such credit taken by it. The said facts are not in dispute. The Ld. Adjudicating authority observed that although the Appellant has reversed the excess credit taken, it had utilized the same and thus, failed to pay appropriate interest chargeable thereon.

Conclusion- Held that in light of the substitution of Rule 14 of the CENVAT Credit Rules, the intention of legislature, not to impose interest where credit has only been taken but has not been utilized, is duly evident. I also hold that the judgment relied upon by the Ld. Authorized Representative for the Department is distinguishable on facts and is therefore not applicable to the present case of the Appellant.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The instant Appeals have been filed by M/s. National Aluminium Company Limited, against the Order-in-Appeals passed by the Ld. Commissioner, Customs & Service tax, Bhubaneswar (Appeals), whereby the levy of interest has been confirmed under Rule 14 of the Cenvat Credit Rules, 2004 (“CCR”) read with Section 11AB of the Central Excise Act, 1944 on the amount of Cenvat credit taken inadvertently but not utilized.

2. Briefly stated, the facts of the case are that due to a clerical error, the Appellant had inadvertently taken CENVAT Credit on duty paid documents twice. On realising its mistake, the Appellant suo-moto reversed such credit taken by it. The said facts are not in dispute. The Ld. Adjudicating authority observed that although the Appellant has reversed the excess credit taken, it had utilized the same and thus, failed to pay appropriate interest chargeable thereon. The said matters travelled upto the High Court, which set aside the orders vide its Order dated 30.11.2022 and restored the file before the Tribunal for fresh hearing on merits.The summary of the case details is provided herein-below:

3. The Ld. Counsels appearing on behalf of the Appellant submitted a synopsis and a written submission along with a compilation of statutory provisions and relied upon the decisions therein. They contended that the Appellant had sufficient balance of CENVAT Credit in its books of accounts and had not utilized the credit taken inadvertently. Reference was made to the relevant statements depicting the Cenvat credit closing balance maintained by the Appellant each month in between the period when the Cenvat credit was inadvertently taken and reversed, to substantiate its claim that the credit was not utilized. Reliance was also placed on the following judgments in favour of the Appellant:

a) Commissioner v. Bill Forge Pvt. Ltd. 2012 (279) ELT 204 (Kar.)

b) JK Tyre & Industries Ltd. v. Assistant Commissioner 2016 (340) ELT 193 (Tri.-LB)

c) SAIL v. CGST & CE, Bolpur 2019 (9) TMI 886 – CESTAT Kolkata.

d) Philips Carbon Black Ltd. v. Commissioner 2017 (6) TMI 628 – CESTAT Kolkata

e) Electrosteel Castings Ltd. v. Commissioner 2018 (7) TMI 1939 – CESTAT Kolkata

f) Anmol Stainless Pvt. Ltd. v. CGST & Excise, Howrah 2020 (2) TMI 1491 – CESTAT Kolkata

4. The Ld. Counsels also submitted that Rule 14 of the CCR was amended vide Notification no. 18/2012 – CE (NT) dated 17.03.2012 and the entry was substituted to “taken and utilized wrongly”. The Ld. Counsels submitted that it is a settled position of law that substitution leads to replacement of the old provision by a new provision. Hence, no interest was payable where CENVAT credit has been merely taken but not utilized.

5. The Ld. Authorized Representative appearing on behalf of the Revenue, submitted that the Appellant is liable to pay interest on Cenvat credit taken on an irregular basis, even though the same was not utilized by them in terms of Rule 14 of the CCR.In support of his contention, he relied upon the decision of Sri Venkateshwara Bhakti Channel v. Commissioner 2023 (2) TMI 182 – CESTAT Hyderabad.

6. Heard both sides and perused the appeal records.

7. I find that in the present facts of the case, the Appellant has asserted that it had sufficient credit balance in its account and also produced relevant statements evidencing the same. Further, the issue of interest on unutilized reversed credit entry was the subject matter before the Hon’ble Supreme Court in the case of Union of India vs. Ind-Swift Laboratories Ltd. [2011 (265) ELT 3 (SC). The decision was considered by Hon’ble Karnataka High Court in the case of CCE & ST vs. Bill Forge Pvt. Ltd. [2012 (26) STR 204 (Kar.), and it is only after consideration of the aforesaid decision of the Hon’ble Supreme Court it was held that in case the Cenvat credit taken is not utilized, no interest liability would arise. The relevant extract of the judgment in case of Bill Forge (supra) is reproduced herein-below:

“20. From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the credit is taken, at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilise the credit to make payment of duty to discharge his liability. Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non- taking of credit on the inputs.

21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to pay interest. Section 11AB of the Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person liable to pay duty, shall in addition to the duty is liable to pay interest. Section do not stipulate interest is payable from the date of book entry, showing entitlement of Cenvat credit. Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly.

22. In the instant case, the facts are not in dispute. The assessee had availed wrongly the Cenvat credit on capital goods. Before the credit was taken or utilized, the mistake was brought to its notice. The assessee accepted the mistake and immediately reversed the entry. Thus the assessee did not take the benefit of the wrong entry in the account books. As he had taken credit in a sum of Rs. 11,691-00, a sum of Rs. 154-00 was the interest payable from the date the duty was payable, which they promptly paid. The claim of the Revenue was, though the assessee has not taken or utilized this Cenvat credit, because they admitted the mistake, the assessee is liable to pay interest from the date the entry was made in the register showing the availment of credit. According to the Revenue, once tax is paid on input or input service or service rendered and a corresponding entry is made in the account books of the assessee, it amounts to taking the benefit of Cenvat credit. Therefore interest is payable from that date, though, in fact by such entry the Revenue is not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the Cenvat credit or utilized the Cenvat Credit. It is in those circumstances the Tribunal was justified in holding that when the assessee has not taken the benefit of the Cenvat credit, there is no liability to pay interest. Before it can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the Cenvat credit was not available. Therefore, the said judgment of the Apex Court has no application to the facts of this case. It is only when the assessee had taken the credit, in other words by taking such credit, if he had not paid the duty which is legally due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under Section 11AB, in order to compensate the Government which was deprived of the duty on the date it became due. Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise.”

8. I also find that the Hon’ble Punjab & Haryana High Court in the case of CCE Vs. Maruti Udyog Ltd., 2007 (214) E.L.T. 173 (P & H) held that the assessee is not liable to pay interest as the credit was only taken as an entry in the Modvat record and was not in fact utilized. Against the decision, the Special leave to Appeal (Civil) No. CC3915/2007 filed by Revenue, was rejected by the Hon’ble Supreme Corut [2007 (214) E. L. T. A50 (S.C.)].

9. Further, the Hon’ble Madras High Court in case of CCE Vs. M/s Strategic Engineering (P) Ltd. – 2014- TIOL-466-HC-MAD-CX considered that the Appellate Tribunal had come to a definite conclusion to the effect that the assessee had merely taken CENVAT credit facilities and before utilizing the same, it was reversed. Therefore, it was held that the assessee was not liable to pay interest and penalty.

10. I find that in a similar case of SAIL v. CGST & CE, Bolpur 2019 (9) TMI 886 – CESTAT Kolkata, this Bench has held that “the erstwhile Rule 14 of the Cenvat Credit Rules read as “taken or utilised”, which had been amended and substituted by the words “taken and utilised”. I find that such an amendment conveys the intent of the legislature and hence, substantive benefit cannot be denied to the appellant. Further, I find that if credit has been taken but not utilised and is subsequently reversed, it leads to no consequence and results in a revenue neutral situation.”Thus, in light of the substitution of Rule 14 of the CENVAT Credit Rules, the intention of legislature, not to impose interest where credit has only been taken but has not been utilized, is duly evident. I also hold that the judgment relied upon by the Ld. Authorized Representative for the Department is distinguishable on facts and is therefore not applicable to the present case of the Appellant.

11. Thus, applying the principles laid down in the precedent decisions, I am of the view that since the Appellant had sufficient credit balances as noted above, there would be no loss of Revenue to the exchequer. Therefore, the imposition of interest in the present proceedings cannot sustain and hence, the impugned orders are set aside.

The Appeal is thus disposed of in above terms with consequential benefits, if any.

(Order pronounced in the open court on 08 June 2023.)