2017 (4) TMI 217 - AT - Central Excise

Interest recoverable on inadmissible CENVAT credit not utilized. Rule 14 amendment non-retrospective. Appeals remanded for extended period assessment.

The Tribunal held that interest is recoverable on inadmissible CENVAT credit availed but not utilized, in line with the Supreme Court's interpretation. ... Recovery of interest under Rule 14 of CENVAT Credit Rules, 2004 - Liability to pay interest on wrongly taken but not utilized CENVAT credit - Effect of reversal of CENVAT credit before utilization - Retrospectivity of amendment to Rule 14 substituting 'taken or utilized' with 'taken and utilized' - Extended period of limitation for recovery where suppression allegedRecovery of interest under Rule 14 of CENVAT Credit Rules, 2004 - Liability to pay interest on wrongly taken but not utilized CENVAT credit - Effect of reversal of CENVAT credit before utilization - Whether interest is recoverable under Rule 14 on CENVAT credit that was availed (book entry) but reversed or not utilized - HELD THAT: - The Tribunal examined Rule 14 as it stood at the relevant time and the pronouncement of the Hon'ble Supreme Court in UOI v. Indo Swift Laboratories Ltd., which held that the word 'or' in 'taken or utilized wrongly' cannot be construed as 'and' and that on the occurrence of any of the circumstances listed in Rule 14 (taken wrongly, utilized wrongly, or erroneously refunded) liability for recovery along with interest arises. Subsequent High Court and Tribunal decisions applying the Supreme Court's ratio were noted. Decisions holding that mere book entries reversed before utilization amount to 'not taking' credit for purposes of exemption notifications were distinguished as being in a different factual and legal context and not addressing Rule 14. The Tribunal rejected the contention that the 2012 amendment substituting 'taken or utilized' with 'taken and utilized' should be given retrospective/clarificatory effect, observing that the amendment expressly operated from 17 3 2012 and no legislative retrospective intent was indicated; prior Tribunal precedent to the contrary was held to be per incuriam where it overlooked the Apex Court and relevant High Court decisions. Applying the settled ratio, the Tribunal held that interest is leviable even if the wrongly availed credit remained a paper entry and was not utilized. [Paras 9, 15, 16, 17]Interest under Rule 14 is recoverable on CENVAT credit wrongly taken even if not utilized; appeals contesting this principle are rejected.Extended period of limitation for recovery where suppression alleged - Verification of applicability of extended period for recovery of interest - Applicability of extended period of limitation for recovery of interest in individual appeals where facts may show suppression or delay - HELD THAT: - While the Tribunal decided the legal question on liability for interest, it noted that invocation of the extended period depends on factual findings concerning suppression of facts or other circumstances warranting extended limitation. The Tribunal referred to authorities on limitation and observed that where extended period is invoked the adjudicating authority must verify whether conditions for extended limitation are satisfied. Consequently, where such factual verification was not undertaken, the matter was remitted for limited enquiry on applicability of extended period in light of settled principles. [Paras 17, 18]Remaining appeals (other than the one within normal limitation) are remanded to the adjudicating authority for limited verification whether the extended period of limitation for recovery of interest is applicable.Final Conclusion: The Tribunal, following the Supreme Court in Indo Swift Laboratories Ltd., held that interest under Rule 14 is leviable on CENVAT credit wrongly taken even if not utilized; one appeal within normal limitation is dismissed on merits, and the other appeals are remanded for limited factual verification on whether the extended period of limitation for recovery of interest applies. Issues Involved:1. Penalty and Interest on CENVAT Credit: Whether interest is recoverable on inadmissible CENVAT credit availed but not utilized.2. Conflicting Judicial Views: Interpretation of Rule 14 of CENVAT Credit Rules, 2004, and its amendment.3. Extended Period of Limitation: Applicability of extended period for recovery of interest.Detailed Analysis:Penalty and Interest on CENVAT Credit:The primary issue revolves around whether interest is recoverable on inadmissible CENVAT credit availed but not utilized. The appellants argued that since the credit was reversed before utilization, no interest should be charged. The Department, however, proposed to recover interest for the period of availing the CENVAT credit, citing Rule 14 of CENVAT Credit Rules, 2004.The Tribunal noted that Rule 14, as interpreted by the Supreme Court in the case of Indo Swift Laboratories Ltd., indicates that interest is recoverable on credit taken or utilized wrongly. The Supreme Court emphasized that 'or' should not be read as 'and,' meaning interest is applicable even if the credit is not utilized but merely availed.Conflicting Judicial Views:The appellants cited various High Court judgments supporting their stance, including Bill Forge Pvt. Ltd. and Dynaflex Pvt. Ltd., which held that interest is not chargeable if the credit is reversed before utilization. However, the Department countered with judgments from the Madras High Court (Sundaram Fasteners Ltd.), Chhattisgarh High Court (Vandana Vidyut Ltd.), and Bombay High Court (GL & V India Pvt. Ltd.), which upheld the Supreme Court's interpretation in Indo Swift Laboratories Ltd.The Tribunal acknowledged the conflicting views but leaned towards the Supreme Court's ruling and subsequent High Court judgments supporting the recovery of interest on availed but not utilized credit.Extended Period of Limitation:The appellants also contested the applicability of the extended period for recovering interest. They argued that the demand for interest was barred by limitation, especially when the credit was reversed without utilization. The Department, however, maintained that the extended period was applicable due to the suppression of relevant facts.The Tribunal referenced the Delhi High Court's judgment in Hindustan Insecticides Ltd., which stated that the period of limitation prescribed under Section 11A of the Excise Act applies to the recovery of interest. The Tribunal remanded the appeals to the adjudicating authority to verify whether the extended period of limitation was applicable, following the principles laid down in this regard.Conclusion:The Tribunal concluded that interest is recoverable on inadmissible CENVAT credit availed but not utilized, aligning with the Supreme Court's interpretation in Indo Swift Laboratories Ltd. The Tribunal also clarified that the amendment to Rule 14, which substituted 'taken or utilized' with 'taken and utilized,' is not retrospective and does not affect the applicability of interest for the period in question.On the issue of limitation, the Tribunal remanded the appeals for verification of the applicability of the extended period for recovering interest, based on the principles established by relevant judicial precedents.Disposition: The appeal by the Revenue was rejected, and the remaining appeals were remanded for further verification on the limitation issue.