Excess Cenvat due to calculation mistake is not wrong availment

Urvashi Porwal

Brief of the Case

In the case of M/s. TNT (INDIA) PVT LTD Versus Commissioner of Central Excise and Service Tax BANGALORE-III, it was held that where the credit taken was based on the documents where service tax on the input services was paid in excess mainly on account of wrong calculation by the appellant. When the appellant had taken CENVAT credit for the said excess payment of service tax, it possibly may be called technically irregular CENVAT credit, but again strictly speaking it is a technical flaw, which had occurred mainly on account of wrong calculation and therefore rule 14 of CENVAT credit rules cannot be invoked.

Facts of the Case

The issue concerns with initial excess payment of service tax by the appellant-assessee and thereafter taking CENVAT credit of the said excess payment which has been found to be irregular/wrong. The assessee later on filed a refund claim for the same. The department accepted the refund claim of the assessee and later issued a show-cause notice for recovery of interest and imposition of penalty on the said irregularly taken CENVAT credit. The Department in this case after receipt of refund claim application dated 21.10.2009 of the assessee, asked for reversal of CENVAT credit for consideration of their refund claim application; the appellant informed the department through their letter dated 13.11.2009 that they reversed the CENVAT credit. The Revenue’s main contention for recovery of interest is provisions of Rule 14 of CENVAT Credit Rules, 2004 as existed during the relevant period. The appellant vehemently argues that their initial excess payment of service tax on receipt of input services from their foreign counterpart was unintentional and mainly because of wrong calculations; after the payment of the excess service tax they had taken the CENVAT credit for the same. The different events are tabulated as under:-

Contentions of the Assessee

The assessee contended that provisions of Rule 14 mentions that wherever the CENVAT credit taken or utilized wrongly it is to be recovered with interest. They have not taken wrong credit and when they have not taken wrong credit, no question of its utilization arises and further there was sufficient credit balance all along in their CENVAT credit account, thus there being no occasion to utilize the said CENVAT credit amount.

The assessee relied on the judgment of The Hon’ble Karnataka High Court in the case of CCE vs. Bill Forge Pvt. Ltd.-2012 (279) E.L.T. 209 (Kar.) saying that as per this judgment no interest liability or penalty is attracted for this transaction of taking CENVAT credit for the excess payment made of the service tax. The assessee further cited the following case laws in support:-

(i) CCE vs. Pearl Insulation Ltd.: 2012 (281) E.L.T. 192 (Kar.)

(ii) CCE vs. Gokaldas Images (P) Ltd.: 2012 (28) S.T.R. 214 (Kar.)

(iii) CCE vs. Strategic Engineering (P) Ltd.: 2012 (310) E.L.T. 509 (Mad.)

Contentions of the Department

The Department contended that provisions of law given in the Rule 14 of CENVAT Credit Rules, 2004 as existed during the relevant period are very clear that wherever CENVAT credit wrongly taken or utilized wrongly, the liability of recovery of the same along with interest is attracted and the provisions of law as mentioned therein i.e., provisions of Sections 73 and 75 of the Finance Act, would apply for effecting the said recoveries. The department cited the Hon’ble Supreme Court’s judgment in the case of UOI vs. Ind-Swift Laboratories Ltd.: 2011 (265) E.L.T. 3 (S.C.).

Held by Hon’ble CESTAT

The Hon’ble CESTAT stated that Revenue is taking support mainly from the Hon’ble Supreme Court’s decision in the case of UOI vs. Ind-Swift Laboratories (supra) saying that in the present case the appellant has wrongly taken the credit and whether the CENVAT credit is utilized or not is immaterial and as per this decision of the Hon’ble Supreme Court, recovery along with interest is rightly attracted. However, the facts in the cited case, where Union of India filed appeal before the Hon’ble Supreme Court was based on the illegal CENVAT credit taken based on the invoices, where goods never accompanied to the premises of the concerned assessee or its group companies. However, in the present case of the appellant viz., M/s. TNT (I) Pvt. Ltd., the credit taken was based on the documents where service tax on the input services was paid in excess mainly on account of wrong calculation by the appellant. When the appellant had taken CENVAT credit for the said excess payment of service tax, it possibly may be called technically irregular CENVAT credit, but again strictly speaking it is a technical flaw, which had occurred mainly on account of wrong calculation. It is on record that the said CENVAT credit was based on actual payment of service tax, though in excess, and on no occasion the appellant-assessee utilized the same as throughout the relevant period, the appellant-assessee had the balance amount in their CENVAT Account more than the CENVAT credit amount in question. Considering the facts of the case quoted by the Revenue, the decision of the Hon’ble Supreme Court is not applicable to the present facts. Further, the appellant who makes the mention of the amended Rule 14 of CENVAT Credit Rules (amended in the year 2012) stating that the wordings “CENVAT credit taken or utilized” have now been substituted with the words – “wrongly taken and utilized”, cannot have any direct effect on the present case as the period involved is prior to the said amendment.

However, Hon’ble Karnataka High Court’s decision in the case of CCE vs. Bill Forge (supra) quoted by the appellant categorically says that interest liability would arise only when duty legally due to the Government is not paid and held as 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. (emphasis supplied)

 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 (emphasis supplied). 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.”

From the above it is clear that as there has been no liability to pay service tax on the appellant-assessee, Revenue cannot impose liability to pay interest on the assessee invoking the provisions of Rule 14 of CENVAT Credit Rules, 2004. The facts of this case are very simple, though unique and there has been no revenue loss on any account even for a day to the Revenue; the appellant-assessee paid service tax in excess and had taken CENVAT credit of the same without any malafide intention; therefore, this is only a kind of technical fault committed by the appellant-assessee, where provisions of Rule 14 of CENVAT Credit Rules, 2004 are not strictly attracted.

When the said technical fault was noticed and the department asked the appellant to furnish CENVAT credit statement showing the availment of credit on 8.9.2009, the appellants vide their letter dated 21.9.2009 furnished the details of CENVAT credit along with their refund claim application. The department asked the appellant vide letter dated 10.11.2009 to reverse the CENVAT credit for consideration of the refund claim. The appellant informed the department vide letter dated 13.11.2009 regarding reversal of CENVAT credit and on 15.1.2010 the department (Assistant Commissioner, LTU) sanctioned the refund to the appellant. Thereafter department issued show-cause notice dated 5.10.2010 starting the proceedings for recovery of interest invoking Rule 14 of CENVAT Credit Rules, 2004 and present appeal is in consequence to the Order-in-Original passed by the Commissioner against the said show-cause notice.

All the above facts, strictly speaking do not clearly prove that the CENVAT credit taken on the excess payment of service tax was in the strict category of “wrongly taken or utilized CENVAT credit” and more so in the light of decision of the Hon’ble Karnataka High Court’s decision in the case of CCE vs. Bill Forge (supra) and by following the decisions of Hon’ble High Courts of Karnataka and Madras given below:

(i) CCE vs. Pearl Insulation Ltd.: 2012 (281) E.L.T. 192 (Kar.)

(ii) CCE vs. Gokaldas Images (P) Ltd.: 2012 (28) S.T.R. 214 (Kar.)

(iii) CCE vs. Strategic Engineering (P) Ltd.: 2012 (310) E.L.T. 509 (Mad.).

Above decisions give support to the conclusion that provisions of Rule 14 of CENVAT Credit Rules, 2004 for recovery of interest on the subject CENVAT credit amount will not be attracted. Consequently, the Revenues stand for recovery of interest under Rule 14 of CENVAT Credit Rules, 2004 and imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004 cannot succeed.

Based on the above discussion and analyses the appellant viz., M/s. TNT (I) Pvt. Ltd. succeeds in their appeal. The appeal is allowed in above terms.