Interest on wrongfully availed CENVAT credit remains recoverable, but demand is restricted by limitation period.
Interest is recoverable on wrongfully availed CENVAT credit even where utilisation is disputed, because the record showed the credit had in fact been used in excess of the available closing balance and the applicable Rule 14 position treats such credit as exigible to interest. The demand of interest is also subject to limitation; the Tribunal followed the view that recovery cannot extend beyond the legally permissible period and confined the demand and penalty to the five-year period counted from the show cause notice. The order was therefore modified to sustain liability on the wrongful credit while restricting monetary consequences to the permissible limitation period.
Issues: (i) Whether interest can be demanded on wrongfully availed CENVAT credit even where the assessee claims that the credit was not utilised; (ii) Whether the demand of interest is governed by the period of limitation and is sustainable only to the extent of the period within five years from the show cause notice.
Issue (i): Whether interest can be demanded on wrongfully availed CENVAT credit even where the assessee claims that the credit was not utilised.
Analysis: The records showed that the credit was utilised in several months in excess of the credit available as closing balance in the preceding months. On that basis, the claim that the wrong credit was never utilised could not be accepted. The Tribunal also noted that interest is exigible on wrongfully availed credit even if utilisation is disputed, in view of the applicable legal position under Rule 14 of the Cenvat Credit Rules, 2004.
Conclusion: The issue was decided against the assessee; interest was held recoverable on the wrongfully availed credit.
Issue (ii): Whether the demand of interest is governed by the period of limitation and is sustainable only to the extent of the period within five years from the show cause notice.
Analysis: The Tribunal accepted the line of authority holding that limitation applies to the demand of interest as well. It distinguished the contrary authority relied upon by Revenue on its facts and followed the view that recovery can be sustained only for the permissible limitation period. Accordingly, the demand and penalty were confined to the period within five years from the date of the show cause notice.
Conclusion: The issue was decided partly in favour of the assessee; the demand of interest and penalty was restricted to the period within five years.
Final Conclusion: The impugned order was modified by upholding liability on the wrongfully availed credit, while restricting the monetary consequences to the legally permissible limitation period.
Ratio Decidendi: Interest is recoverable on wrongfully availed CENVAT credit, and the demand is subject to limitation so that recovery cannot extend beyond the legally permissible period.
TaxTMI 
AI Drafter ✕
TaxTMI 
