2017 (6) TMI 362 - AT - Central Excise

Tribunal overturns interest demand on reversed cenvat credit due to tax-exempt goods. Legal precedents crucial.

The Tribunal allowed the appeal, overturning the Commissioner (Appeals) order, as interest demand on reversed cenvat credit was deemed invalid due to ... Liability of interest - whether interest was payable on the amount of CENVAT credit which was contained in the inputs used in finished goods and work in progress for the period of 24 days after obtaining the exemption? - Held that: - the issue is squarely covered by the judgment of Hon’ble High Court of Karnataka in the case of C.C.E., Bangalore-I vs. Aravind Brands Ltd. [2011 (7) TMI 258 - Karnataka High Court], where it was held that there is no delay in payment of duty. The delay is in reversal of cenvat credit, therefore interest not liable - the question of interest to be charged, on the amount which has actually been reversed, is not sustainable - appeal allowed - decided in favor of appellant. Issues: Appeal against Order-in-Appeal regarding duty exemption and interest payment on cenvat credit reversal.Analysis:1. Issue of Duty Exemption and Cenvat Credit Reversal:The case involved a dispute regarding the duty exemption availed by the appellants under Notification No. 30/2004-CE and the subsequent reversal of cenvat credit on inputs used in finished goods, work in progress, and raw material. The Revenue demanded interest on the reversed amount due to a perceived delay in payment. The appellant argued that since no duty was demanded, the question of interest did not arise. Reference was made to a Tribunal judgment and a High Court judgment to support this argument. The Tribunal analyzed the issue and found that the interest payable was compensatory in nature for the delay in payment of duty. However, in this case, as the goods were completely exempted from tax from a certain date, the Revenue did not suffer any loss. Therefore, the Tribunal held that the interest on the reversed cenvat credit was not sustainable. The judgment of the Himachal Futuristic Communications Ltd. case further supported the appellants' position that reversal of cenvat credit at the time of opting for exemption did not warrant interest payment on the reversed amount.2. Legal Precedents and Interpretation:The Tribunal extensively referred to the judgment of the Hon'ble High Court of Karnataka in the case of C.C.E., Bangalore-I vs. Aravind Brands Ltd., which established the compensatory nature of interest payment for delayed duty payment. The Tribunal also cited the judgment of Himachal Futuristic Communications Ltd. case to reinforce the principle that in scenarios where cenvat credit reversal is not required at the time of opting for exemption, charging interest on the reversed amount is not justified. By aligning with these legal precedents, the Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal filed by the appellants.3. Final Decision and Outcome:After hearing both parties and examining the records, the Tribunal concluded that the interest demand on the reversed cenvat credit amount was not valid in the given circumstances where the goods were exempted from tax. Relying on the judgments of the Hon'ble Karnataka High Court and the Tribunal's own decision in a similar case, the Tribunal allowed the appeal, thereby overturning the order of the Commissioner (Appeals). The appellants succeeded in their appeal against the demand for interest payment on the reversed cenvat credit, emphasizing the importance of legal precedents and the specific circumstances of duty exemptions in determining the applicability of interest charges.