2009 (7) TMI 98 - HC - Central Excise

Court Rules on Interest Calculation for Wrongly Availed CENVAT Credit

The court held that interest is payable on wrongly availed CENVAT credit from the date of wrong availment and not from the date of utilization. It ... Interest under Section 11AB - CENVAT credit - availment versus utilization - Recovery of wrongly taken CENVAT credit under Rule 14 read with Section 11AB - Deemed credit/receipt on production of TR 6 bank stampInterest under Section 11AB - CENVAT credit - availment versus utilization - Recovery of wrongly taken CENVAT credit under Rule 14 read with Section 11AB - Interest liability arises from date of wrongful utilization of CENVAT credit and not from the date of mere availment of such credit. - HELD THAT: - The Court examined the scheme of the Central Excise Act and the CENVAT Credit Rules and held that availment of CENVAT credit only confers a benefit of duties already leviable or paid and does not itself create a liability to pay excise duty. Section 11AB levies interest where duty has not been levied or paid or has been short paid; interest is compensatory for delay in payment of duty. Rule 14 must be read in conjunction with Rules 3 and 4 so as to require interest only where the CENVAT credit has been taken and utilized wrongly. On the conjoint reading, interest cannot be claimed from the date of wrongful availment; it is payable from the date the CENVAT credit is wrongly utilized. The Court relied on the compensatory character of interest as explained in precedents and rejected the respondents' submission that mere availment attracts interest under Section 11AB as applied through Rule 14. [Paras 10, 11]Interest shall be payable only from the date the CENVAT credit is wrongly utilized and not from the date it was wrongly availed.Deemed credit/receipt on production of TR 6 bank stamp - Interest under Section 11AB - Payment evidenced by TR 6 challan stamped by the bank (deposit on 8 3 2006) must be treated as credited to Government for purposes of stopping interest; respondents cannot claim interest up to PLA debit on 31 1 2007 in respect of that deposit. - HELD THAT: - The Court noted that the show cause notice and the Settlement Commission's order treated the Rs. 50 lakhs deposited through TR 6 dated 8 3 2006 as part of the deposits. The Central Excise Manual (Chapter 3, Part V, cl. 3.3) clarifies that once the assessee deposits a cheque and the bank gives a receipt stamp on the TR 6 challan the amount shall be treated as credited to the account of the Central Government. The respondents' later contention that the amount became available only on debit of the PLA on 31 1 2007 was inconsistent with their earlier treatment of the deposit in the show cause notice and before the Settlement Commission. In these circumstances the respondents were not entitled to claim interest on the said Rs. 50 lakhs up to 31 1 2007. [Paras 13, 15, 16]The Rs. 50 lakhs deposited on 8 3 2006 by TR 6 challan is to be treated as credited on that date for stopping interest; respondents cannot claim interest on that amount up to 31 1 2007.Final Conclusion: Writ petition allowed in part; respondents directed to re calculate the interest liability in accordance with the Court's conclusions (interest payable only from date of wrongful utilization of CENVAT credit and the TR 6 deposit of 8 3 2006 to be treated as credited for stopping interest). No order as to costs. Issues Involved:1. Whether interest is payable from the date CENVAT credit was wrongly availed or from the date the duties were actually paid.2. Whether the deposit of Rs. 50 lacs through TR-6 challan on 8-3-2006 is valid for cessation of interest or if interest is payable until the personal ledger account was debited on 31-1-2007.Issue-wise Detailed Analysis:1. Interest Payable from Date of Wrong Availment or Date of Payment:The petitioner company, engaged in the manufacture of bulk drugs, wrongly availed CENVAT credit of Rs. 6,50,44,412/- between 1-11-2001 and 31-3-2006, utilizing Rs. 5,71,47,148/-. The Settlement Commission, in its order dated 19-1-2007, granted immunity from interest in excess of 10% per annum and directed the petitioner to pay simple interest at 10% per annum on the wrongly availed CENVAT credit from the date the duty became payable as per Section 11AB of the Central Excise Act, 1944. The petitioner was called upon to deposit interest amounting to Rs. 1,47,90,065/- on 22-3-2007, calculated from the date of wrong availment of credit. The petitioner sought clarification from the Settlement Commission, which held that interest is payable from the date CENVAT credit was wrongly availed and not from the date of utilization.The court examined Section 11AB of the Act and Rules 3 and 4 of the CENVAT Credit Rules, 2004, which allow a manufacturer to take credit of excise duty and utilize it for payment of any excise duty on final products. The court noted that interest under Section 11AB is compensatory and arises when duty of excise has not been levied or paid. It held that no liability of payment of excise duty arises when CENVAT credit is availed; liability arises only at the time of utilization. Therefore, interest is not payable on the amount of CENVAT credit availed but not utilized. Rule 14 of the Credit Rules, which allows recovery of CENVAT credit wrongly taken or utilized, was read down to mean that interest is payable only on CENVAT credit wrongly taken and utilized.2. Validity of Deposit of Rs. 50 Lacs through TR-6 Challan on 8-3-2006:The petitioner deposited Rs. 50 lacs through TR-6 challan on 8-3-2006, but the respondents claimed interest until 31-1-2007, when the personal ledger account was debited. The respondents argued that the amount became available to the Central Government only on 31-1-2007. However, the court noted that the show cause notice and the Settlement Commission's order acknowledged the deposit of Rs. 4 crores, including the Rs. 50 lacs deposited on 8-3-2006. The Central Government's clarification in the Central Excise Law Manual stated that once the bank gives a receipt stamp on TR-6 challans, the amount is treated as credited to the account of the Central Government.The court found that the respondents' argument was contradictory, as they treated the entire amount of Rs. 4 crores as deposited towards excise duty in the show cause notice and the Settlement Commission's order. Therefore, the respondents could not dispute the date of payment subsequently. The court held that the respondents wrongly claimed interest on the CENVAT credit from the date it was wrongly availed and were not entitled to claim interest on the Rs. 50 lacs until 31-1-2007, as the amount was deposited on 8-3-2006.Conclusion:The court directed the respondents to re-calculate the amount of interest, considering the observations made in the judgment. The writ petition was disposed of with no costs.