2023 (4) TMI 663 - AT - Service Tax

Commissioner's interest imposition upheld on unutilized Cenvat credit; penalty waived on condition.

The Tribunal upheld the Commissioner's decision to impose interest on erroneously taken Cenvat credit, even if not utilized, citing a Supreme Court ruling ... Liability of Interest on CENVAT Credit wrongly taken (credit availed but not utilised) - appellant had taken 100% credit on capital goods in the year 2009-10 itself - As per department since appellant have erroneously taken 50% cenvat credit of Rs. 23,47,192/- in the year 2009-10 instead of taking in the year, 2010-11, the appellant was liable for payment of interest on such cenvat credit wrongly taken - Rule 14 of Cenvat Credit Rules 2004 - penalty - HELD THAT:- Rule 14 has been interpreted by the Hon’ble Supreme Court in the case of UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. [2011 (2) TMI 6 - SUPREME COURT] - Hon’ble Supreme Court in the case of Union of India v. Ind-Swift Laboratories Ltd., has interpreted the unamended Rule 14 which was applicable to the appellant during the financial years in question and, has categorically held that a bare reading of such rule would clearly indicate that the manufacturer or the provider of the output service becomes liable to pay interest, along with the dues where Cenvat credit has been taken or utilized wrongly or has been erroneously refunded. The Hon’ble Supreme Court, accordingly, held that if the said Rule 14 is read as a whole, the Hon’ble Supreme Court did not find any reason to read the word ‘or’ in between the expressions ‘taken’ or ‘utilized wrongly’ or ‘has been erroneously refunded’ as the word ‘and’. Another issue raised by the Appellant is that subsequent amendment brought to Rule 14 of Cenvat Credit Rules, 2004, the expression “taken or utilized wrongly” has been substituted with “taken and utilized wrongly” be read as clarificatory in nature and hence retrospective in application - this issue has also been considered by the Mumbai Bench of this Tribunal in M/S BALMER LAWRIE & CO LTD VERSUS CCE BELAPUR [2014 (2) TMI 545 - CESTAT MUMBAI] where it was held that This amendment rule makes it absolute clear that the amendment is with effect from 17-3-2012 and not before. In view of the express provisions in the Amendment Rules, the argument of the appellant that amendment being in the nature of substitution would have retrospective effect cannot be accepted. It is a trite law that every statutory provision is prospective only unless it is explicitly provided that it is retrospective in nature and the legislature provides for such retrospective operation. In the present case, no such retrospectivity has been provided by the legislature in respect of Notification 18/2012-C.E. (N.T.), dated 17-3-2012 and, therefore, the argument of the Counsel in this regard and the decisions relied upon in support of the same cannot be accepted”. There are no merit in the contentions raised in the appeal that mere availment of Cenvat credit without its utilisation of the same will not attract interest at appropriate rate under Rule 14 of Cenvat Credit Rules, 2004 as was in force during the relevant time. Penalty - HELD THAT:- Ld. Commissioner after considering all the facts rightly extended the benefits of waiver of penalty to the appellant - the said waiver of the penalty shall be subject to payment of interest of Rs 84,460/- by the Appellant within 30 days of receipts of this order. Appeal allowed in part. 1. ISSUES PRESENTED AND CONSIDERED Whether interest is recoverable under Rule 14 of the Cenvat Credit Rules, 2004 on Cenvat credit that was availed (taken) but not utilized by the assessee. Whether the 2012 amendment to Rule 14 substituting 'taken or utilized wrongly' with 'taken and utilized wrongly' operates retrospectively so as to negate liability for interest where credit was taken but not utilized before the amendment. Whether waiver of penalty by the Commissioner was proper and, if so, whether such waiver should be subject to payment of interest. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Recoverability of interest on Cenvat credit availed but not utilized Legal framework: Rule 14 of the Cenvat Credit Rules, 2004 (as in force for the relevant period) provides that where the Cenvat credit 'has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered' and incorporates Sections 11A and 11AB of the Excise Act / Sections 73 and 75 of the Finance Act for recovery. Precedent treatment: The Supreme Court's interpretation in Union of India v. Ind-Swift Laboratories Ltd. (interpreting the unamended Rule 14) held that the disjunctive 'taken or utilized wrongly' must be read as such, and that liability for recovery with interest arises upon the occurrence of any one of the three specified circumstances (taken wrongly, utilized wrongly, or erroneously refunded). The Tribunal accepts and follows that decision and states it is bound by it. Interpretation and reasoning: A literal reading of Rule 14 (unamended) shows a clear disjunction: liability for recovery with interest arises when credit is either taken wrongly or utilized wrongly or erroneously refunded. The Tribunal applies the Supreme Court's ruling to the facts: the assessee availed 100% Cenvat credit in 2009-10 though only 50% was permissible that year under Rule 4(2)(a); therefore the credit was 'taken' wrongly even though it remained unutilized in that year. Reliance on the CBEC circular (No. 897/17/2009-CX dtd. 03.09.2009) is noted as consistent with the rule's wording; however the Tribunal principally follows the Supreme Court's statutory interpretation. Ratio vs. Obiter: The holding that interest is payable where credit was taken wrongly but not utilized is applied as ratio, grounded in the Supreme Court's authoritative interpretation of the unamended Rule 14. Any reference to administrative circulars is obiter relative to the statutory and precedent-based reasoning. Conclusion: Interest under Rule 14 is recoverable on Cenvat credit that was availed (taken) wrongly even if the credit was not utilized by the assessee in the relevant period. The Tribunal rejects the appellant's contention that non-utilization negates interest liability. Issue 2 - Effect of the 2012 amendment substituting 'taken or utilized wrongly' with 'taken and utilized wrongly' (retrospectivity) Legal framework: Notification amending Rule 14 (effective 17-3-2012) replaced the disjunctive phrase 'taken or utilized wrongly' with the conjunctive phrase 'taken and utilized wrongly'. General principle of statutory interpretation: amendments are prospective unless expressly made retrospective by the legislature. Precedent treatment: The Tribunal relies on its own and other Tribunal precedents (e.g., a Mumbai Bench decision) which held that the 2012 amendment is prospective as expressly made effective from 17-3-2012 and does not confer retrospective relief where liability arose earlier under the unamended rule. Interpretation and reasoning: The amendment's language and the express effective date indicate a prospective change in the law. There is no legislative provision making the amendment retrospective. Consequently, the legal position governing the relevant financial year remains the unamended Rule 14. The Tribunal reasons that substitution of terms in itself does not render the new wording retrospectively operative absent explicit legislative intent. Ratio vs. Obiter: The conclusion that the 2012 amendment is prospective and does not affect liabilities arising under the unamended Rule 14 is applied as ratio to the facts; references to broader principles of retrospectivity are supportive reasoning rather than ancillary obiter. Conclusion: The 2012 amendment cannot be read retroactively to relieve an assessee from interest liability that accrued under the unamended Rule 14 prior to 17-3-2012. The appellant's plea of retrospective clarification fails. Issue 3 - Waiver of penalty and conditions for waiver Legal framework: Penalties under the Cenvat Credit Rules may be imposed where wrongful availment occurs; however the Commissioner has discretion to waive penalties based on facts and considerations of law and equity. Precedent treatment: The Tribunal notes the Commissioner granted waiver of penalty after considering the facts; the Tribunal does not disturb the Commissioner's exercise of discretion absent perversity or legal error. Interpretation and reasoning: Given the Commissioner's considered decision to extend waiver of penalty, the Tribunal finds no infirmity warranting interference. The Tribunal conditions the waiver on payment of the interest amount held due under Rule 14 within a specified period, aligning the penalty waiver with recovery of statutory dues. Ratio vs. Obiter: The acceptance of the Commissioner's discretionary waiver in this instance is applied as reasoned conclusion and not generalized dictum. The Tribunal's refusal to interfere with the waiver is case-specific ratio; any broader commentary about discretionary waivers is obiter. Conclusion: The Tribunal upholds the Commissioner's waiver of penalty but directs that the waiver is subject to payment of the interest (Rs. 84,460/-) within 30 days, thereby partially allowing the appeal consistent with statutory recovery principles. Cross-references Issue 1 and Issue 2 are interlinked: applicability of Rule 14 as unamended governs interest liability for the relevant period, and Issue 2's determination that the 2012 amendment is prospective confirms that the unamended Rule 14 controls the outcome on Issue 1.