Tribunal overturns interest demand & penalty for incorrect Cenvat Credit use

The Tribunal set aside the interest demand and penalty imposed on the appellants for wrongly availing Cenvat Credit invoiced to the Head Office but utilized by a different unit. The Tribunal ruled that since the credit was promptly reversed upon audit detection, no interest was payable, as per the High Court of Gujarat's decision. Additionally, the penalty under Section 11AC was deemed inapplicable due to the lack of intent to evade duty. The Order In Original was upheld with modifications, allowing the appeal in favor of the appellants.

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Issues:
Demand of Cenvat Credit availed by one unit but invoiced to Head Office, interest payment, penalty under Section 11AC.

Analysis:
The case involved a dispute where the Revenue raised a demand on the appellants for wrongly availing Cenvat Credit due to invoices showing the Head Office address, although the credit was utilized by a different unit. The Adjudicating Authority confirmed the demand along with interest and penalty under Section 11AC. The appellants argued that they had reversed the credit before utilization upon audit notification, citing decisions by the Hon'ble Supreme Court and High Courts to support their stance. The Revenue, however, contended that the reversal only occurred post-audit intervention and disagreed with the appellants' arguments, presenting contrary decisions and emphasizing the risk of short levy due to the credit error.

The Tribunal noted that the appellants had indeed availed Cenvat Credit based on Head Office invoices for a manufacturing unit and had reversed it promptly upon audit detection, with no double availment alleged. While the appellants did not contest the necessity of reversal, they challenged the interest and penalty imposition. The Tribunal acknowledged conflicting decisions on interest levy but relied on the Hon'ble High Court of Gujarat's ruling that reversal before utilization equates to not taking credit, thus no interest is payable. Consequently, the Tribunal held that no interest was due in this case. Regarding the penalty under Section 11AC, it was deemed inapplicable as there was no intent to evade duty based on the facts presented.

In conclusion, the Tribunal set aside the interest demand under Rule 14 of the Cenvat Credit Rules 2004 and the penalty under Section 11AC of the Central Excise Act 1944, upholding the Order In Original with the specified modifications. The appeal was allowed under these terms.

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