Manufacturer faces interest & penalty for double availing CENVAT credit, seeks clarity on interest liability

The appellant, involved in manufacturing, admitted to availing CENVAT credit twice on certain invoices but promptly reversed the credit upon discovery. Despite this, interest and penalty were imposed. The appellant argued that no interest liability arises if credit is reversed before utilization, citing relevant case law. The respondent, however, relied on a different judgment to support the imposition of interest even if the credit is not utilized. The conflicting decisions led the Tribunal to refer the matter to a Larger Bench to resolve the question of interest liability in such cases.

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Issues involved:
1. Availing CENVAT credit twice on certain invoices.
2. Imposition of interest and penalty.
3. Interpretation of law regarding interest liability on wrongly availed credit.

Analysis:
1. The appellant, engaged in manufacturing tyres, tubes, and flats under Chapter 40 of Central Excise Tariff Act, 1985, admitted to availing CENVAT credit twice on certain invoices, amounting to Rs. 1,38,748. They promptly reversed the wrongly availed credit upon discovery during an audit.

2. Subsequently, proceedings were initiated against the appellant through a show-cause notice proposing to confirm interest and penalty. The original adjudicating authority upheld the interest of Rs. 11,959 under Rule 14 of CENVAT Credit Rules, 2004, along with a penalty of Rs. 2000 under Rule 15A. This decision was affirmed by the Commissioner (Appeals), leading to the present appeal.

3. The appellant's advocate cited the Karnataka High Court's decision in CCE&ST, LTU, Bangalore Vs. Bill Forge Pvt. Ltd., supported by the Supreme Court's ruling in UOI Vs. Ind-Swift Laboratories Ltd., to argue that no interest liability arises if wrongly availed credit is reversed before utilization. The advocate emphasized that since the credit was reversed before use, there was no loss to the Revenue, and the entry remained only on paper. Regarding the penalty, it was attributed to a clerical error without any malicious intent.

4. In contrast, the respondent's representative highlighted a recent judgment of the Madras High Court in CCE, Chennai-IV Vs. Sundaram Fasteners Ltd., which concluded that even if wrongly availed credit is not utilized, it remains recoverable along with interest. The conflicting decisions of the Karnataka and Madras High Courts prompted the Tribunal to refer the matter to the Hon'ble President for the constitution of a Larger Bench to address the question of whether interest liability arises when wrongly availed credit is reversed before utilization.

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