2014 (2) TMI 545 - AT - Central Excise

Tribunal confirms interest on CENVAT credit, penalties set aside

The Tribunal confirmed the interest liability on the CENVAT credit taken by the appellant from the date of taking the credit until its reversal. However, ... Reversal of CENVAT Credit - removal / return of inputs as such - Import of base oil - Penalty u/s 11AC - Held that:- it is the fact that the appellant had cleared the base oil so obtained on payment of duty by reversing the CENVAT credit taken on the base oil. Under the CENVAT Credit Rules, 2004 when inputs are cleared as such, the appellant is liable to discharged duty liability thereon by reversing the CENVAT credit taken which the appellant has done in the instant case and therefore, the question of recovery of CENVAT credit which has already been reversed at the time of clearance of base oil cannot be sustained in law as it would amount to double demand of duty - Therefore, the confirmation of demand once again on base oil is not sustainable in law. Levy of interest on Reversal of Cenvat Credit - Held that:- The hon'ble apex court in Union of India vs. Ind-Swift Laboratories Ltd.- [2011 (2) TMI 6 - Supreme Court] held that Rule 14 of the CENVAT Credit Rules, 2004 specifically provides for interest on CENVAT credit taken or utilized wrongly or erroneously refunded. Therefore, interest on irregular credit arises from the date of taking of such credit. Whether the extended period of time could be invoked - Held that:- they had declared the taking of credit in ER-1 returns. We have also perused the ER-1 Returns available on record. It is seen that the details of the documents on the strength of which credit has been taken is reflected in the said returns. However, it is nowhere declared that the goods on which credit has been taken is not intended for use in or in relation to the manufacture of excisable goods. Arrangements which the appellant had with VCL for the storage of the goods and its return as and when needed was never disclosed to the department. In these circumstances, the invocation of extended period of time for denial of credit is clearly sustainable in law. Whether the appellant is liable to penalty under Rule 15 or under 26 of the CENVAT Credit Rules, 2004 - Held that:- appellant even though had taken the credit wrongly, did not utilize the said credit at any point of time. This clearly shows that the appellant had no intention to evade any duty. Therefore, in the absence of any mens rea, it is difficult to sustain imposition of equivalent amount of penalty under Rule 15 read with Section 11AC on the appellant. Accordingly, we set aside the penalty imposed on the appellant under the said provisions of law. On the same ground we do not find any reason to impose penalty under Rule 26 of the Central Excise Rules, 2002 and therefore, the same is also set aside. Issues Involved:1. Admissibility of CENVAT credit.2. Liability to pay interest on the wrongly taken credit.3. Invocation of the extended period for demand.4. Retrospective application of the amendment to Rule 14 of the CENVAT Credit Rules, 2004.5. Imposition of penalties under Rule 15 and Rule 26 of the CENVAT Credit Rules, 2004.6. Imposition of redemption fine on the goods.Detailed Analysis:1. Admissibility of CENVAT Credit:The appellant, M/s. Balmer Lawrie & Co. Ltd., availed CENVAT credit on imported base oil, which was transferred to them for storage by M/s Valvoline Cummins Ltd. (VCL). The department contended that the credit was not permissible as the base oil was not intended for use in the manufacture of excisable goods. The Tribunal agreed with the department, stating that the appellant was 'ab initio ineligible for taking of CENVAT credit' since the base oil was never intended for use in manufacturing any dutiable final product. However, since the appellant had reversed the credit upon returning the base oil, the Tribunal held that demanding the same credit again would amount to a 'double demand of duty.'2. Liability to Pay Interest:The Tribunal examined whether the appellant was liable to pay interest on the wrongly taken credit. Citing the Supreme Court's decision in Union of India vs. Ind-Swift Laboratories Ltd., the Tribunal concluded that interest liability arises from the date of taking the credit, regardless of its utilization. Therefore, the appellant was liable to pay interest from the date of taking the credit until the date of its reversal.3. Invocation of the Extended Period for Demand:The appellant argued that the demand was time-barred as the show-cause notice was issued in June 2008, while the credit was taken during 2003-04. The Tribunal found that the appellant had not disclosed the arrangement with VCL for storage and return of the goods to the department, thus justifying the invocation of the extended period for denial of credit.4. Retrospective Application of Amendment to Rule 14:The appellant contended that the amendment to Rule 14, which changed the wording from 'CENVAT credit taken or utilized wrongly' to 'CENVAT credit taken and utilized wrongly,' should have retrospective effect. The Tribunal rejected this argument, stating that the amendment was explicitly prospective, effective from 17.03.2012, and there was no legislative provision for its retrospective application.5. Imposition of Penalties:The Tribunal considered whether penalties under Rule 15 and Rule 26 of the CENVAT Credit Rules, 2004, were warranted. It concluded that since the appellant had not utilized the wrongly taken credit, there was no intention to evade duty, and therefore, penalties could not be sustained. Consequently, the penalties imposed on the appellant were set aside.6. Imposition of Redemption Fine:The Tribunal addressed whether a fine was liable to be imposed on the base oil cleared by the appellant. It held that redemption fine could only be imposed if the goods were available for confiscation, which was not the case here. Therefore, the liability to pay any fine did not arise.Conclusion:The Tribunal confirmed the interest liability on the CENVAT credit taken by the appellant from the date of taking the credit until its reversal. However, since the credit had already been reversed, the demand for the same credit was not sustained. The penalties and fines imposed on the appellant were also set aside. The appeal was disposed of accordingly.