2025 (8) TMI 1222 - AT - Service Tax

Appellant must reverse ineligible Cenvat credit under Rule 6(3A) by prescribed date and pay interest for delay

CESTAT upheld the adjudicating order and dismissed the appeal, holding the appellant liable to reverse ineligible Cenvat credit on exempted services by ... 100% EOU - liability of interest on the short reversals of the cenvat credit availed on the exempted services - wrong availment and utilization of cenvat credit - Rule 6(3A)(c)(iii) of the Cenvat Credit Rules, 2004 - HELD THAT:- As seen from the Cenvat Credit Rules, 2004, it categorically disallows cenvat credit on inputs/services used exclusively in the exempted goods/services. Thus, there is no provision to avail cenvat credit on exempted goods or services, however, when the appellant utilizes common credit for both exempted and dutiable goods/services, the Rules provide the benefit of availing credit on both provided the cenvat credit on the exempted services is reversed as per the formula laid down on or before 30th June of every financial year. In case, there is a delay in reversing the ineligible credit, the Rules also provide for payment of interest. Admittedly, in this case, as per the appellant’s own calculation they were to reverse Rs.12,14,98,147/- on 30th of June 2009 but they had reversed Rs.3,39,93,788/- on 02.06.2009 and the balance ineligible credit of Rs.8,75,04,359/- was reversed only on 30.09.2009. As per Clause (d) and (e) of Rule 6(3A) of Cenvat Credit Rules, 2004 reproduced below, it is very obvious that the appellant has to discharge interest liability as and when there is a delay in reversing the ineligible credit as per the prescribed formula dealt under Rule 6(3A) of Cenvat Credit Rules, 2004. The Supreme Court in the case of Steel Authority of India Ltd. Versus Commissioner of C. EX., Raipur [2019 (5) TMI 657 - SUPREME COURT] with regard to interest liability held that 'The fact that it is known, later cannot detract from the fact, that the later discovered price would not be value at the time of removal. Most significantly, Section 11A and Section 11AB as it stood at the relevant time did not provide read with the rules any other point of time when the amount of duty could be said to be payable and so equally the interest”.' Thus, when specific provisions are provided under Rule 6(3A) of the Cenvat Credit Rules 2004 on ineligible cenvat credit availed by the appellant on exempted goods which demands reversal of credit on or before 30th June of 2009, the appellant had to reverse the same and the provisions also specifically provide for payment of interest under Rule 6(3A) in case of delay. Based on the observations of the apex court the words taken and utilised mentioned in Rule 14 cannot be read into Rule 6(3A) which is entirely for a different purpose altogether. The appellant is liable to pay interest from the stipulated date till the reversal of credit and accordingly, the impugned order is upheld - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a provider of output service is liable to pay interest under Rule 6(3A)(e) of the Cenvat Credit Rules, 2004 for short reversal of ineligible cenvat credit attributable to exempted services where the reversal required to be made on or before 30th June of the succeeding financial year was delayed. 2. Whether the interest provision in Rule 14 (recovery of CENVAT credit wrongly taken or erroneously refunded) can be read down or applied so as to negate the specific interest liability created by Rule 6(3A) in respect of ineligible common credit. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Liability to pay interest under Rule 6(3A)(e) for delayed reversal of ineligible credit Legal framework: Rule 6(3A) of the Cenvat Credit Rules, 2004 prescribes the method for attributing ineligible and eligible credit (A, B, C, D, G), requires payment of amounts determined thereunder, mandates annual determination (A(Annual), D(Annual)), and imposes a requirement to pay on or before 30th June of the succeeding financial year the difference [{A(Annual)+D(Annual)} - {(A+D) aggregated for the whole year)}] where greater. Clause (e) of Rule 6(3A) expressly provides that if the amount under clause (d) is not paid by 30th June, interest at fifteen per cent per annum is leviable from that date till payment. Precedent treatment: The Tribunal considered higher court authority(s) that interpret interest liability under the credit rules and taxing statutes-particularly pronouncements holding that interest consequences flow from clear statutory language in taxing provisions and that courts should not import or read down statutory words to negate clear fiscal obligations. Those pronouncements were treated as affirming that specific rule-based interest obligations must be given effect as written. Interpretation and reasoning: The Court examined the factual chronology of provisional and final attributions of ineligible credit: initial intimation and partial reversal, a subsequent revision allowing re-credit, and a later final intimation showing a larger ineligible amount which was reversed after 30th June. The Court held that Rule 6(3A) contemplates provisional attribution and a final annual determination; where the final annual determination results in an amount greater than provisional aggregates, the shortfall must be paid on or before 30th June and interest follows automatically under clause (e). The specific language of clause (e) creates an express interest obligation from 30th June until payment when the clause (d) payment is not timely made. The existence of a positive balance in the appellant's credit ledger does not negate this statutory interest obligation, because the rule imposes a temporal obligation to reverse and pay the differential by the prescribed date and to bear interest for any delay. Ratio vs. Obiter: Ratio - Where a provider of output service uses common credit and the final annual determination increases the ineligible credit aggregate above the provisional payments, Rule 6(3A)(d) requires payment of the differential by 30th June and Rule 6(3A)(e) mandates interest from that date until payment. Obiter - Observations on the appellant's particular ledger balances and timing of interim reversals insofar as they do not alter the statutory requirement. Conclusion: The Court concluded that the provider is liable to pay interest under Rule 6(3A)(e) for the period from 30th June of the succeeding financial year until actual reversal/payment where the differential ineligible credit was reversed after that date. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Relationship between Rule 14 and Rule 6(3A); permissibility of reading down Rule 14 to avoid interest under Rule 6(3A) Legal framework: Rule 14 provides for recovery of cenvat credit wrongly taken or erroneously refunded along with interest and makes relevant provisions for recovery. Rule 6(3A) is a specific rule governing attribution, annual reconciliation and interest for failure to pay the differential by 30th June. Principles of statutory interpretation applicable to fiscal statutes require that specific provisions control over general ones and that taxing provisions be given effect according to their clear words. Precedent treatment: The Court relied on authoritative rulings that: (a) interest liability in taxing statutes must be determined by the clear statutory language and courts should not import or substitute words by reading down where the provision is unambiguous, and (b) specific provisions designed for particular reconciliation/payment events prevail over general recovery provisions. The Tribunal treated earlier High Court interpretations that restricted interest under Rule 14 as distinguishable where a separate, specific interest provision exists. Interpretation and reasoning: The Tribunal held that Rule 6(3A) and Rule 14 operate for different purposes - Rule 6(3A) prescribes a scheme of provisional attribution, annual reconciliation and an express temporal interest consequence for delayed payment of the specific differential; Rule 14 deals with recovery where credit has been wrongly taken/used or refunded. The word 'OR' in Rule 14 cannot be judicially converted to 'AND' to avoid operation of a separate specific provision. Applying well-settled interpretive canons, the Tribunal found it impermissible to read Rule 14 so as to negate or override the specific interest requirement of Rule 6(3A). The Tribunal emphasized that where the legislature has provided a clear mechanism and interest consequence in a rule tailored to a particular factual situation (ineligible common credit reconciliation), that mechanism must be enforced rather than supplanted by a generalized construction of another rule. Ratio vs. Obiter: Ratio - A general recovery provision (Rule 14) cannot be read down to negate an explicit, specific interest obligation created by Rule 6(3A); specific interest provisions take precedence and must be applied according to their plain meaning. Obiter - Commentary on broader principles of taxation interpretation and legislative policy supporting enforcement of specific fiscal obligations. Conclusion: The Court concluded that Rule 14 cannot be read down or invoked to extinguish the interest liability expressly created by Rule 6(3A); therefore the interest demand under Rule 6(3A)(e) stands. OVERALL CONCLUSION The Court held that where an output service provider's final annual attribution of ineligible common credit exceeds the aggregate provisional ineligible credits for the year, the differential had to be paid by 30th June of the succeeding financial year under Rule 6(3A)(d), and failing such payment, interest at fifteen per cent per annum under Rule 6(3A)(e) is payable from 30th June until payment. The Court upheld the impugned demand for interest on the delayed reversal and rejected the contention that a general recovery provision or prior authority interpreting a different rule negated the specific interest obligation under Rule 6(3A).