2011 (2) TMI 6 - SC - Central Excise

Supreme Court restores Rule 14 interpretation: CENVAT credit recoverable with interest when wrongly taken OR utilized OR erroneously refunded

UOI and Ors. Versus Ind-Swift Laboratories Ltd.

The SC reversed the HC's interpretation of Rule 14 regarding CENVAT credit recovery. The HC erroneously read down the provision by substituting 'OR' with ... Entitlement to claim interest on wrongly availed CENVAT credit is payable from the date the credit was wrongly availed or from the date the credit was actually utilized - HELD THAT:- A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word 'OR' appearing in Rule 14, twice, could be read as 'and' by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word 'OR' in between the expressions Taken' Or utilized wrongly' or Has been erroneously refunded' as the word 'and'. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest. The attempt of the High Court to read down the provision by way of substituting the word 'OR' by an 'and' so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules. In the present case the order of the Settlement Commission clearly indicates that the said order, particularly, with regard to the imposition of simple interest @ 10 per cent per annum was passed in accordance with the provisions of Rule 14 but the High Court wrongly interpreted the said Rule and thereby arrived at an erroneous finding. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:(a) Whether interest on wrongly availed CENVAT credit is payable from the date the credit was wrongly availed or from the date the credit was actually utilized;(b) The proper interpretation of Rule 14 of the CENVAT Credit Rules, 2004, particularly the meaning and scope of the phrase 'taken or utilized wrongly' and the applicability of Section 11AB of the Central Excise Act for recovery of interest;(c) Whether the High Court was justified in interfering with the Settlement Commission's order regarding the calculation and period of interest on CENVAT credit;(d) Whether the High Court was correct in holding that interest cannot be claimed simply on the basis of wrongful availment of CENVAT credit without actual utilization;(e) Whether the High Court erred in considering the interest on a specific amount of Rs. 50 lacs deposited by the respondent, which was a factual issue;(f) The finality and conclusiveness of the Settlement Commission's order under Section 32M of the Central Excise Act and the scope of judicial review thereof.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Whether interest on wrongly availed CENVAT credit is payable from the date of availment or utilization, and interpretation of Rule 14 of the CENVAT Credit Rules, 2004The relevant legal framework includes Rule 14 of the CENVAT Credit Rules, 2004, which provides:'Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11A and 11AB of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.'Section 11AB of the Central Excise Act deals with the levy of interest on delayed payments of excise duty.The High Court interpreted Rule 14 by reading down the phrase 'taken or utilized wrongly' to mean that interest is payable only from the date the CENVAT credit was actually utilized wrongly, not from the date it was wrongly availed. The High Court reasoned that mere wrongful availment of credit does not create a liability for excise duty, and hence interest cannot be charged from that date.The Supreme Court rejected this interpretation, holding that the High Court misread and misinterpreted Rule 14. The Court emphasized that the word 'or' in the phrase 'taken or utilized wrongly' is disjunctive and should not be read as 'and.' Therefore, interest is payable if either the credit is wrongly taken or wrongly utilized, independently. The Court stated:'Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered... The issue is as to whether the aforesaid word 'OR' appearing in Rule 14, twice, could be read as 'and' by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word 'OR' in between the expressions 'Taken' Or 'utilized wrongly' or 'Has been erroneously refunded' as the word 'and'. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.'The Court further clarified that Section 11AB is applicable for recovery of interest on the amount due and payable, and there is no justification for limiting interest liability to the date of utilization only. The Court criticized the High Court's attempt to read down the statutory provision by substituting words not found in the statute, stating that the rule of reading down is only to make a provision workable or to save it from constitutional invalidity, not to rewrite the statute.The Court cited precedents emphasizing that taxing statutes must be interpreted strictly according to their clear language without importing provisions or assumptions, and equitable considerations are irrelevant in such interpretation.Applying the law to the facts, since the respondent had admitted to wrongful availment of CENVAT credit and had the benefit of such credit from the date it was wrongly taken, interest was rightly imposed by the Settlement Commission from the date the duty became payable, i.e., from the date of wrongful availment.The Court rejected the respondent's contention that interest should be calculated only from the date of utilization and upheld the Settlement Commission's order imposing interest @ 10% per annum from the date the duty became payable till the date of payment.Issue (c) and (f): Whether the High Court was justified in interfering with the Settlement Commission's order and the finality of such orderThe Settlement Commission's order was passed under Sections 32E and 32F of the Central Excise Act, following the respondent's admission of liability and payment of duty. The order imposed duty liability and interest, and granted immunity from penalty and prosecution.Section 32M of the Act provides that every order of settlement passed under Section 32F(7) shall be final and conclusive and cannot be reopened in any proceeding under the Act or any other law, except where the order was obtained by fraud or misrepresentation.The Court held that the Settlement Commission's order was final and conclusive, and the High Court erred in interfering with it by substituting its own interpretation of Rule 14 and the period of interest. The Court emphasized that findings of fact recorded by the Settlement Commission or questions of fact are not open to examination by the High Court or Supreme Court, unless the order is contrary to law.The Court noted that the respondent did not challenge the Settlement Commission's order on merit, and the subsequent application for clarification was rightly dismissed by the Commission as barred by Section 32M.Accordingly, the Court set aside the High Court's judgment and restored the Settlement Commission's order.Issue (d): Whether interest can be claimed simply on the basis of wrongful availment of CENVAT creditThe High Court held that mere wrongful availment does not create liability for excise duty and interest cannot be claimed on that basis alone; interest is payable only from the date of wrongful utilization.The Supreme Court disagreed, holding that wrongful availment itself triggers liability for duty and interest. The Court found no merit in the argument that interest should be restricted to the date of utilization. The plain language of Rule 14 and the provisions of Section 11AB support interest liability from the date the duty became payable, i.e., the date of wrongful availment.Issue (e): Interest on Rs. 50 lacs deposited by the respondentThe High Court held that the respondent was not entitled to pay interest on Rs. 50 lacs up to 31.01.2007 as the amount was already deposited on 08.03.2006.The Supreme Court observed that this was a factual issue which should not have been gone into by the High Court in writ jurisdiction, especially when the Settlement Commission's order was not challenged on this ground. The Court held that the High Court erred in substituting its opinion on this factual matter.3. SIGNIFICANT HOLDINGS'Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered... On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.''The High Court erroneously held that interest cannot be claimed from the date of wrong availment of CENVAT credit and that it should only be payable from the date when CENVAT credit is wrongly utilized.''A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency.''An order passed by the Settlement Commission could be interfered with only if the said order is found to be contrary to any provisions of the Act. So far findings of the fact recorded by Commission or question of facts are concerned, the same is not open for examination either by the High Court or by the Supreme Court.''Section 32M of the Central Excise Act bars the Commission from re-opening its final order. Hence, the final order already passed in the matter was conclusive as to the matters stated therein and the same cannot be re-opened for the purpose of deciding the said point raised subsequently.'The Court finally determined that interest on wrongly availed CENVAT credit is payable from the date the duty became payable (i.e., date of wrongful availment), not from the date of utilization. The Settlement Commission's order imposing interest @ 10% per annum from the date of wrongful availment till payment was valid and binding. The High Court's judgment interfering with this order was set aside, and the Settlement Commission's order was restored.