Interest not leviable on irregularly availed but unutilized Cenvat Credit, following Karnataka HC precedent on duty payment timing

CESTAT Chennai held that interest is not leviable on irregularly availed Cenvat Credit that was not utilized, following Karnataka HC precedent that interest liability arises only when duty is unpaid on due date. The Tribunal found no tax evasion motive where appellant took credit in books but never utilized it and reversed the irregular credit before show cause notice issuance. Extended limitation period invocation was unjustified. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Whether interest is leviable on irregular/excess Cenvat Credit availed but not utilizedRs.
2. Whether extended period is invokable and imposition of equal penalty sustainableRs.

Summary:

1. Interest on Irregular/Excess Cenvat Credit:

The Tribunal examined whether interest is leviable on irregularly availed but not utilized Cenvat Credit. The appellant argued that due to maintaining a huge balance of Cenvat credit, the demand for interest would not sustain. The Tribunal referred to the Karnataka High Court's decision in Bill Forge Pvt. Ltd., which held that interest is compensatory and payable only when duty is not paid on the due date. If the credit is reversed before utilization, no interest is due. The Tribunal also cited Lakshmi Machine Works Ltd. and Strategic Engineering Pvt. Ltd., which supported the view that mere availment without utilization does not attract interest. Thus, the Tribunal concluded that interest is not leviable on the irregular availment of credit.

2. Extended Period and Penalty:

The Tribunal assessed whether the extended period for recovery and imposition of penalty was justified. The appellant contended that there was no malafide intention as the credit was reversed upon audit's pointing out. The Tribunal referred to its own decision in the appellant's case, which held that if credit is reversed before utilization, invoking the extended period is not justified. The Tribunal also noted that the facts in the present case differ from the Sree Rayalseema Hi-Strength Hypo Ltd. case, where the extended period was invoked due to ineligible credit on welding electrodes. As such, the Tribunal found no justification for attributing any motive to evade tax and held that the extended period is not invokable.

Conclusion:

The Tribunal set aside the impugned order and restored the original order, ruling that interest is not leviable on the irregular availment of credit and the extended period of limitation is not invokable. The appeal was allowed with consequential relief as per the law.

(Order pronounced in open court on 07.05.2024)

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