AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (4) TMI 969
X X X X Extracts X X X X
X X X X Extracts X X X X
....une 2007, it was observed that the assessee had taken excess credit of Rs.98,77,446-00 on capital goods. The said fact was pointed out to the assessee. The assessee by their letter dated 12.09.2007 admitted the wrong committed by them and informed the Revenue that they have reversed the same in September, 2007. They have over drawn only an amount of Rs.11.691-00 in payment of Education Cess for the month of July 2007 and the interest liability calculated thereon at Rs.184-00 has since been debited in their PLA account on 27.09.2007. A Show cause notice was issued to the assessee calling upon them to show cause notice as to why they should not be levied interest and penalty for wrongful availment of Cenvat Credit. In reply thereto, they submitted that the mistake of taking excess credit has occurred only in the capital goods credit account and not in the other account, namely input credit and service tax credit. The availment of excess credit has not resulted in any over drawal in the credit account. Therefore no interest is payable on such wrongly availed credit. In view of the reversal of the credit and interest paid for the overdrawn amount, they requested for dropping of further....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est is payable from the day the duty is payable, in order to compensate the Revenue for the loss sustained on account of delayed payment of duty. Even in Rule 14 on which reliance is placed, the word used is "taken or utilized wrongly". It does not mean that when an entry is made in the account book showing that assessee is entitled to take credit of the duty paid on inputs or capital goods or input services the assessee is benefited to any extent. It is only, when that credit is taken or utilized to discharge the liability to pay duty he is benefited. If the said credit is taken wrongly, the liability to pay interest arises. In the instant case, though the entry was made in the account book showing availment of credit on being pointed out, the said entry was reversed. Thus the assessee did not take or utilize the benefit of the said credit and therefore there is no liability to pay interest. Therefore he submitted that even in the judgment relied on by the learned Counsel for the Revenue, in the facts of this case, the interest was levied from the date the duty was payable and not from the date the entry of Cenvat credit made in the books of account. The Supreme Court was concerne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned to be payable is reduced by the Commissioner (Appeals), the Appellate Tribunal [National Tax Tribunal] or, as the case may be, the court, the interest shall be payable on such reduced amount of duty. Explanation 2: Where the duty determined to be payable is increased or further increased by the Commissioner (Appeals), the Appellate Tribunal [National Tax Tribunal] or, as the case may be, the court, the interest shall be payable on such increased or further increased amount of duty]". 9. It deals with payment of interest on any duty of excise which has not been levied or paid or has been short levied or short paid or erroneously refunded. A person who is liable to pay duty in any one of those cases is liable to pay interest at such rate not below 10% and not exceeding 35% p.a. from the first date of the month succeeding the month in which the duty ought to have been paid under this Act or from the date of such erroneous refund, as the case may be. However, the proviso to said Section makes an exception in cases where no interest shall be payable. 10. The Apex Court in the case of PRATHIBA PROCESSORS vs. UNION OF INDIA reported in 1996 (88) ELT 12 (SC), explaining the term ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad been no Modvat scheme excise duty on the raw material would be included in the cost of production of the excisable product. The Modvat Scheme did not alter this fundamental position. By virtue of it the cost of the raw material was not reduced. The Modvat scheme resulted in reducing the excise duty on the excisable product. It was a separate and special facility that had the effect of reducing the excise duty incidence on the excisable product and had no bearing in determining the cost of its production. The credit of excise duty on the raw material in the register maintained for Modvat purposes was only a book entry which might be utilised later for payment of excise duty on the excisable product. In other words, it matured when the excisable product was removed from the factory and the stage for payment of excise duty thereon was reached. Actually, credit was taken, that is, availed of or utilised, at the time of the removal of the excisable product. Consequently, the cost of production of the excisable product was not reduced by the amount of the Modvat credit on the raw material. The credit was a contingent credit. It might be disallowed under certain circumstances. It could....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the nature of set-off available against the payment of excise duty on the final products. There are two alternative methods of treatment of Modvat credit in accounts: (a) Specified duty paid on inputs may be debited to a separate account, e.g., Modvat credit Receivable (Inputs) Account. As and when Modvat credit is actually utilised against payment of excise duty on final products, appropriate accounting entries will be required to adjust the excise duty paid out of Modvat credit Receivable (Inputs) Account to the account maintained for payment/provision for excise duty on final product. In this case, the purchase cost of the inputs would be net of the specified duty on inputs. Therefore, the inputs consumed and the inventory of inputs would be valued on the basis on purchase cost net of the specified duty on inputs. The debit balance in Modvat credit Receivable (Inputs) Account should be shown on the assets side under the head 'advances'. (b) In the second alternative, the cost of inputs may be recorded at the total amount paid to be supplier inclusive of the specified duty on inputs. To the extent the Modvat credit is utilised for payment of excise duty on final product....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s claimed. Therefore, payment was made before the stage of exemption. Similarly, on payment of duty on the input (yarn) the assessee got the credit which was never utilized. That before utilization, the entry has been reversed which amounts to not taking credit. Hence, in this case, both the conditions are satisfied. Hence item no.1 of the table to Notification No.14/2002-C.E. would apply and accordingly the grey fabrics would attract nil rate of duty." 15. The Gujarat High Court in the of COMMISSIONER OF CENTRAL EXCISE Vs. ASHIMA DYECOT LTD., reported in 2008 (232) ELT 580 (Guj) after referring to the Chandrapur Magnet Wires (P) Ltd., held as under: "6....... Once appropriate entries have been made in the register, there is no rule under which the process could be reversed. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods as should have been done. But the Court's attention was drawn to the departmental circular according to which in a case where the manufacture produces dutiable final products and also final goods which are exempt from duty and it is not reasonably possi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is wrongfully utilized. In our considered opinion, the High Court misread and misinterpreted the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word 'OR' appearing in Rule 14, twice, could be read as "AND" by way of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the said credit had been utilized wrongly and that interest cannot be claimed simply for the reason that Cenvat credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Further they held that the word 'OR' appearing in Rule 14 twice could be read as 'AND' by way of reading it down. Disagreeing with the said reasoning, the Apex Court held that Rule 14 specifically provides that where Cenvat has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. If the aforesaid provision is read as a whole we find no reason to read the word 'OR' in between the expression 'taken' or 'utilized wrongly' or 'has been erroneously refunded' as the word 'AND'. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest. Therefore the High Court erroneously held that interest cannot be claimed from the date or wrong availment of Cenvat credit, that they should be payable from the date when the Cenvat credit is wrongly utilized. Therefore the attempt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s it very clear that the said provision is attracted where the Cenvat Credit has been taken or utilized wrongly or has been erroneously refunded. In view of the aforesaid judgment of the Apex Court, the question of reading the word 'and' in place of 'or' would not arise. It is also to be noticed that in the aforesaid Rule, the word 'avail' is not used. The words used are 'taken' or 'utilized wrongly'. Further the said provision makes it clear that the interest shall be recovered in terms of Section 11A and 11B of the Act. 20. From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the credit is taken, at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of ....