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Manufacturer not liable for interest on reversed Cenvat credit if promptly rectified The appellant, a manufacturer of woven fabrics, had reversed Cenvat credit after claiming duty drawback on exports. The department sought interest on the ...
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Manufacturer not liable for interest on reversed Cenvat credit if promptly rectified
The appellant, a manufacturer of woven fabrics, had reversed Cenvat credit after claiming duty drawback on exports. The department sought interest on the reversed credit. The Tribunal, considering relevant case law, held that interest is payable only if the credit benefit was utilized and not promptly reversed. As the appellant had not utilized the credit and promptly rectified the error, interest was deemed unjustified. Consequently, the Tribunal set aside the order, ruling in favor of the appellant.
Issues: - Liability to pay interest on reversed Cenvat credit availed by the appellant.
Analysis: The appeal was filed against an Order in original where the appellant, engaged in manufacturing woven fabrics, had availed Cenvat credit amounting to Rs. 17.92 lakh on various services during 2006-07 to 2007-08. Subsequently, the entire Cenvat credit was reversed as the appellant was claiming duty drawback on export of cotton fabric. The department demanded interest on the reversed Cenvat credit from the date it was taken until the date it was reversed. The appellant contended that the availed credit was never utilized and was reversed due to being an exporter claiming drawback. The appellant cited various judgments to support their argument, including cases like CCE vs. Strategic Engineering, Gurmehar Constructions vs. CCE, and CCE vs. Bill Forge Pvt. Ltd. The appellant argued that interest should not be charged on the reversed credit. The Tribunal examined the case laws cited by the appellant and the decision of the Apex Court in Union of India vs. M/s. Ind-Swift Laboratories Ltd. The Tribunal noted the observation of the Hon'ble High Court of Karnataka in the case of Bill Forge Ltd., which emphasized that interest is payable only if the benefit of the credit was actually taken and not reversed promptly upon realization of the mistake. The Tribunal concluded that since the appellant did not utilize the credit and promptly reversed the entry upon realizing the mistake, there was no justification for demanding interest. Therefore, the impugned order was set aside, and the appeal was allowed.
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