Government company wins appeal against interest demand on irregular CENVAT credit taken but not utilized

CESTAT Chennai set aside the Commissioner's order demanding interest on irregular CENVAT credit that was taken in books but not utilized. The appellant, a government-owned company, had availed 100% CENVAT credit on capital goods instead of stipulated 50% and credit on customs cess. The Tribunal held that interest is not demandable on unutilized credit, relying on SC precedent in Ind-Swift Laboratories case. The Tribunal also found the show cause notice time-barred as extended limitation period could not be invoked against a public sector undertaking without proving mala fide intent to evade duty. Appeal allowed.

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Issues Involved:
1. Whether interest is demandable on irregular CENVAT Credit merely taken in the books but not utilizedRs.
2. Whether the availment of CENVAT Credit by the appellant on the basis of various invoices/documents is in order or not in terms of Rule 9 of CENVAT Credit Rules, 2004Rs.
3. Whether invocation of extended period of time and imposition of penalty are justified considering the facts of this appealRs.

Summary:

Issue 1: Interest on Irregular CENVAT Credit Not Utilized
The appellant, M/s. Bharat Sanchar Nigam Limited, contended that although 100% credit was taken, only 50% was utilized during the year, and the balance credit was not utilized till the date of its eligibility. The Tribunal noted that the appellant had not utilized the credit taken towards payment of any duty/tax. It was held that when CENVAT Credit was merely taken in the books but not utilized, it would not involve any payment of interest or penalty. This position was supported by various higher judicial fora, including the Hon'ble High Court of Karnataka in Bill Forge Pvt. Ltd. and the Hon'ble High Court of Madras in Strategic Engg. Pvt. Ltd. Therefore, the recovery of interest was not legally justified and not maintainable.

Issue 2: Availment of CENVAT Credit on Ineligible Documents
The appellant had availed CENVAT Credit based on invoices raised by the Input Service Distributor and other divisions, arguing that the goods and services were consumed by the appellant. The Tribunal found that the appellant is a Government-owned company with different circles and divisions, and discrediting these documents for the purpose of availment of CENVAT Credit was not legal and proper. Unless there was an allegation that the capital goods were diverted or not installed in the appellant's premises, the appellant was eligible for the CENVAT Credit availed.

Issue 3: Invocation of Extended Period and Imposition of Penalty
The appellant argued that being a Public Sector Undertaking, there was no deliberate suppression of facts with an intent to evade. It was noted that all details were duly furnished in their ST-3 returns and relevant invoices were made available to the department. The Tribunal relied on decisions such as Indian Oil Corporation Ltd. and Nepa Ltd., which held that a Public Sector Undertaking cannot have mala fide intentions for non-discharge of duty, and there cannot be an allegation of intention to evade duty. Consequently, the demand notice was found to be time-barred, and there was no justification for invoking the extended period of limitation.

Conclusion:
The impugned Order-in-Original No. 15/2014 dated 05.08.2014 was set aside. The appeal was allowed with consequential reliefs as per the law.

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