TaxTMI 
TaxTMI 
2015 (2) TMI 1147
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....g 2000-01 and 2001-02, grey cotton fabrics were fully and unconditionally exempted from duty under Notifications No. 6/2000-C.E. and 3/2001-C.E. respectively. During 2000-01, the appellant received some capital goods. During 2000-01, the appellant took 50 per cent. of the credit of the duty paid on the capital goods and during 2001-02, they took the remaining amount of CENVAT Credit. The total CENVAT credit taken on the capital goods was Rs. 66,69,432/-. During 2000-01, 2001-02 and 2002-03, except for a few invoices for impregnated nylon fabrics, a dutiable final product, all other invoices were for clearance of grey cotton fabrics, an exempted final product. During 2000-01, the appellant issued three invoices showing clearances of 4500 metres of impregnated nylon fabrics to M/s. Shree Hanuman Textiles, Delhi on payment of duty which had been paid through the capital goods CENVAT Credit. During 2002-03, they issued an invoice to M/s. Shree Hanuman Textiles regarding clearance of 160 metres impregnated nylon fabrics on payment of duty which had been paid through CENVAT Credit. Here, it may be mentioned that in terms of the provisions of the CENVAT Credit Rules in force during the pe....
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....shed goods. Accordingly, the department was of the view that duty of Rs. 2,24,81,249/- in respect of clearances of cotton fabrics during period from 1-3-2002 to 31-3-2003 would be recoverable from them along with interest thereon under Section 11AB and penalty under Section 11AC would be imposable on them for non-payment of duty, as the same appeared to be deliberate. Accordingly, the show cause notices were issued for allegedly wrongly availed capital goods CENVAT Credit of Rs. 66,69,432/- during 2000-01 and 2001-02 along with interest thereon under Section 11AB and imposition of the penalty on the appellant under Rule 13(2) of CENVAT Credit Rules, 2001 and also for recovery of Central Excise duty amounting to Rs. 2,24,81,249/- in respect of clearances of grey cotton fabrics during 1-3-2002 to 31-3-2003 under proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on it under Section 11AB and imposition of penalty on the appellant company under Section 11AC of the Act and imposition of penalty under Rule 26 of the Central Excise Rules on Sh. Vinit Sethi, Director of the appellant company. 1.3 The above-mentioned show cause notices were adjudicated by ....
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....rately or fraudulently taken, as, if CENVAT Credit taken has been reversed without being utilized, it would amount to not taking the credit at all; that in this regard, he relies upon the judgment of Apex Court in the case of CCE, Mumbai-I v. Bombay Dyeing and Manufacturing Company Limited reported in 2007 (215) E.L.T. 3 (S.C.) in Para 8 of which the Apex Court has held that if the entry of taking CENVAT Credit in the CENVAT Credit account has been reversed before utilization, it would amount to not taking the credit; that this judgment of the Apex Court was not considered by the Apex Court in its judgment in the case of Union of India v. Ind-Swift Laboratories Ltd. reported in 2011 (265) E.L.T. 3 (S.C.) = 2012 (25) S.T.R. 184 (S.C.); that Hon'ble Karnatka High Court in the case of CCE & ST, Bangalore v. Bill Forge Pvt. Ltd. reported in 2012 (26) S.T.R. 204 (Kar) = 2012 (279) E.L.T. 209 (Kar.) relying upon the Apex Court's judgment in the case of CCE, Mumbai -I v. Bombay Dyeing and Manufacturing Company Ltd. 3 (S.C.) Supra has held that when wrongly taken CENVAT Credit is reversed before being utilized for payment of duty or for any other purpose, it would amount to not taking the ....
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....tion cannot be denied and in this regard, it is not material whether the credit was reversed before the clearance or subsequent to the clearance of the final products; that same view has been taken by Hon'ble Gujarat High Court in the case of CCE v. Ashima Dyecot Ltd. reported in 2008 (232) E.L.T. 580 (Guj.) = 2008 (12) S.T.R. 701 (Guj.) the SLP, filed by the Government against which has been dismissed by the Apex Court vide judgment reported in 2009 (240) E.L.T. A41 (Supreme Court) and that in view of the above submissions, impugned order is not sustainable. 4. Sh. Pramod Kumar, the learned Joint CDR, defending the impugned order by reiterating the findings of the Commissioner, pleaded that during the period of dispute, appellants were manufacturing only grey cotton fabrics and they had no facility to manufacture impregnated nylon fabrics; that since the grey cotton fabrics were fully exempted from duty and the capital goods received by them were meant only for manufacture of grey fabrics, they were not entitled for capital goods CENVAT Credit in respect of the capital goods received by them during 2000-01; that in order to fraudulently avail CENVAT Credit in respect of th....
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....g with interest and interest on wrong credit would be payable under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AB of Central Excise Act, 1944; that in this judgment, Hon'ble Madras High Court also held that for the purpose of interest reversal of credit would not amount to credit having not been taken and Hon'ble High Court held that in such situation, the judgment of the Hon'ble Allahabad High Court in the case of Hello Minerals Water (P) Ltd. v. Union of India reported in 2004 (174) E.L.T. 422 (All.) would not be applicable; that the Tribunal in the case of CCE, Pune-II v. KAY Bouvei Engineering Pvt. Ltd. reported in 2014 (301) E.L.T. 100 (Tri. Mumbai) has also held that provisions of Section 11A(2B) would not apply when the CENVAT Credit has been fraudulently taken in respect of the goods not received in the factory and by manipulating the gate register to show the receipt and in such situation, interest under Section 11AB and penalty under Section 11AC would also be attracted, even if the CENVAT Credit had been reversed immediately on being pointed out; that the same view has been taken by the Tribunal in the case of Balmer Lawrie & Company Ltd. v. CCE, Belapu....
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....pose of these Rules, the credit which had initially been taken but has been reversed without being utilized, would amount to credit not taken and in such cases, the provisions of interest and penalty would not be attracted, that even in the cases, where the credit had taken in a fraudulent manner, if it has been reversed before being utilized, it would amount to not taking the credit and the provisions of interest under Section 11AB and penalty would not be attracted; that in this regard, the Apex Court in the case of Bombay Dyeing and Manufacturing Company Limited (Supra) has clearly held that the credit which has been reversed before utilization would be treated as credit not taken; that the Apex Court in the case of Ind-Swift Laboratories (Supra) has not considered its earlier judgment in the case of CCE v. Bombay Dyeing and Manufacturing Company Limited; that in the case of Bill Forge Pvt. Ltd. (Supra) decided by Hon'ble Karnataka High Court, capital goods CENVAT Credit had been taken in a fraudulent manner without receipt of the capital goods and except for utilization to the extent of about Rs. 11,000/-, the remaining credit was unutilized and was reversed on being pointed ou....
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.... 2009 (238) E.L.T. 2 (S.C.). With regard to the reduced penalty in terms of the proviso to Section 11AC, he pleaded that even if the appellant have reversed the CENVAT Credit prior to issuance of show cause notice, the benefit of earlier penalty would not be available and in this regard, he relies upon the judgment of Hon'ble Delhi High Court in the case of Sh. Sai Enterprises v. Commissioner of Central Excise reported in 2013 (288) E.L.T. 40 (Del.) and Hon'ble Gujarat High Court judgment in the case of Commissioner of Central Excise & Customs, Surat v. Rajeshri Dyeing and Printing Mills Pvt. Ltd reported in 2014 (305) E.L.T. 442 (Guj.). 7. We have considered the submissions from both the sides and perused the record. The appellants are manufacturer of grey cotton fabrics. There is no dispute that during the period of dispute, i.e., from 2000-01 and 2002-03, they were not manufacturing impregnated nylon fabrics and had no facility or capacity to manufacture the same. Appellant had received capital goods for manufacture of grey cotton fabrics during 2000-01 and they took the CENVAT Credit in two instalments during 2000-01 and 2001-02, as per the provisions of CENVAT Credit R....
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....n fabrics under four invoices [though on enquiry, the goods cleared under these invoices were found to be exempted goods, i.e., grey cotton fabrics], the department was of the view that appellant would not be eligible for duty exemption in respect of clearances of grey cotton fabrics from 1-3-2002 to 31-3-2003 even if they had subsequently reversed the CENVAT Credit in November, 2003. The duty demand of Rs. 2,24,81,247/- is on this basis. This is the second point of dispute. On this point, the department's stand is that reversal of the CENVAT Credit subsequent to the clearances would not make any difference and for the purpose of Notification No. 14/2002-C.E., the appellant would have to be treated as having availed capital goods CENVAT Credit and would not be eligible for the exemption. 8. Coming first question of duty exemption Notification No. 14/02-C.E. in respect of clearances of grey cotton fabrics during period from 1-3-2002 to 31-3-2003, the exemption by grey cotton fabrics during this period was available subject to the condition that no CENVAT Credit has been taken in respect of any inputs or capital goods. There is no dispute that the appellant had taken capital ....
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....udgment are reproduced below : "16. The Tribunal has disallowed the benefit of Notification No. 15/1994-C.E. dated 1-3- 1994 (Supra) holding that the credit was not reversed by the petitioner prior to clearance/removal of the goods. "17. The question as to whether manufacturer can be treated as not having taken credit on the inputs used in the manufacture of final product, even though it was originally taken but subsequently reversed, has been decided by a five Members Bench of the Tribunal in the case of Franco Italian Company Pvt. v. CCE, 2000 (120) E.L.T. 792. The aforesaid five members Bench of the Tribunal after taking into account the ratio laid down by the Supreme Court in the case of Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur, 1996 (81) E.L.T. 3 has held as under : "6. Drawing similar analogy we consider that subject to the reversal of Modvat credit taken with regard to the inputs which were utilized in the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as full duty exemption under applicable small scale exemption notification with regard to some specified goods. Reference is answered ac....
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.... that the duty paid in the inputs used should be debited, before removal of such exempted final products. Since the Circular in that case required reversal of the credit before removal of the final product, hence the Supreme Court interpreting the said circular has mentioned that they see no reason why the assessee cannot make debit entry before removal of exempted final products. 21. In the present case for the purpose of claiming the benefit of the Notification No. 15/9-C.E., dated 1-3-1994 neither any circular has been issued nor the said circular of 1986 has been made applicable in the notification, which has been issued in 1994. 22. Hence in our opinion the Tribunal was not justified in taking a view that reversal of the credit having been made by the petitioner after removal of the final products the petitioner was not entitled to the benefit of Notification No. 15/94-C.E., dated 1-3-1994. 23. This view of the Tribunal is in our opinion patently erroneous and contrary to the decision of the five Member Larger Bench of the Tribunal as well as three member bench of the Tribunal, and is also contrary to the ratio of the decision of the S....
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....decision of the Tribunal was followed the ratio of the decision of the Supreme Court in the case of Chandrapur Magnet Wires (supra). 30. In these circumstances the order of the Tribunal dated 1-10-2003 in so far as it relates to denial of the benefit of Notification No. 15/1994-C.E. is liable to be, and is hereby, set aside. The petitioner is thus entitled to the benefit of the said Notification No. 15/1994-C.E., dated 1-3- 2004 and reversal of Modvat credit on the inputs namely PVC granules used in the manufacture of PVC/PP bottles, which have been admittedly reversed by the petitioner, even though after clearance of the final product." 8.2 We find that the same view has been taken by Hon'ble Gujarat High Court in the case of CCE v. Ashima Dyecot Limited reported in 2008 (232) E.L.T. 580 (Guj.). The Government filed a Special Leave Petition to the Apex Court against this judgment of Hon'ble Gujarat High Court and the Apex Court vide judgment reported in 2009 (240) E.L.T. A41 (S.C.) after condoning the delay and admitting the SLP dismiss the same. 8.3 Since in the present case, there is no dispute that entire CENVAT Credit, though wrongly and fraudulen....
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....of Central Excise Act or Sections 73 and 75 of Finance Act, 1994 shall apply mutatis mutandis for affecting such recoveries. In the case of M/s. Ind-Swift Laboratories, during period from 2001 to March, 2006, the assessee had taken the CENVAT Credit of Rs. 6,50,44,412/- on the basis of fake invoices. Out of this credit, they had utilized the credit of Rs. 5,71,47,148/- for payment of duty. When this was detected in course of investigation initiated sometimes in March, 2006, M/s. Ind-Swift Laboratories admitting the wrong taking of CENVAT Credit, deposited the amount of Rs. 5,71,47,148/- during March, 2006 and November, 2006 partly in cash and partly by reversing the CENVAT Credit. The assessee was issued the show cause notice dated 8-12-2006 for recovery of fraudulently taken CENVAT Credit of Rs. 5,71,47,148/- utilized by them for payment of duty. The show cause notice invoked the Rule 12 of the CENVAT Credit Rules, 2001/2002 and CENVAT Credit Rules, 2004 read with Section 11A(1) of Central Excise Act. The show cause notice also demanded interest under Section 11AB on the fraudulently availed credit. The assessee filed an application before the Settlement Commission under Section 3....
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....so as to supply any assumed deficiency. 9.2 We find that Hon'ble Karnataka High Court in the case of CCE & ST, Bangalore v. Bill Forge Pvt. Ltd. after discussing the Apex Court's judgment in the case of Ind-Swift Laboratories (Supra) has held that interest is compensatory in nature and is imposed on assessee who has withheld payment of any tax as and when it was due; that the levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date; that taking of CENVAT Credit is only a book entry which is not in the nature of utilization of the credit for payment of duty; that Section 11AB is attracted only in delayed payment of duty, where duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded and that this section does not stipulate interest from the date of book entry showing entitlement of CENVAT Credit. Accordingly, Hon'ble High Court in this judgment held that interest would not be payable from the date of wrong taking of the CENVAT Credit but would be payable from the date on which such wrongly taken CENVAT Credit has been utilized for payment of duty, and the implication of t....
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....redit was reversed. We find that the same view has been taken by Hon'ble Madras High Court in the case of CCE, Chennai-IV v. Sundram Fastners Ltd. reported in 2014 (304) E.L.T. 7 (Mad.). In this judgment, Hon'ble High Court considered the judgment of Hon'ble Karnataka High Court. The case of CCE & ST, LTU Bangalore v. Bill Forge Pvt. Ltd. (supra) and also the judgment of Hon'ble Allahabad High Court, in the case of Hello Minerals Water (P) Ltd. and also the Apex Court in the case of Chandrapur Magnet Wire Pvt. Ltd v. CC, Nagpur and in Paras 10, 11 and 12 of the judgment observed as under : 10. We do not agree with the submissions made by the learned counsel for the assessee, as the decisions rendered in the aforesaid cases by the Allahabad High Court as well as the Karnataka High Court as well as the Hon'ble Supreme Court, arose out of a case where the assessee claimed benefit of an exemption notification. The question which fell for consideration in those cases is as to whether reversal of credit after the removal of the final product would entitle the assessee therein to the benefits of exemption notification, which states that the reversal of the credit should be d....
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....ifically 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 reading it down as has been done by the High Court. If the aforesaid provision is read as a whole, we find no reason to read the word "OR" in between the expressions 'taken' or 'utilized wrongly' or 'has been erroneously refunded' as the word "AND". On the happening of any of the three circumstances such credit becomes recoverable along with interest". 12. In the light of the above findings of the Hon'ble Apex Court, particularly with regard to Rule 14, we do not find any justifiable ground to accept the plea of the assessee based on the decisions relied on by the assessee reported in 1996 (81) E.L.T. 3 (S.C.), 2004 (174) E.L.T. 422 (All.) and 2012 (279) E.L.T. 209 (Kar.). 10. Next comes the question as to whether the appellant would be liable for penalty under Rule 57AH(2) of Central Excise Rules, 1944/Rule 13(2) of CENVAT Credit R....
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....ed before the issue of show cause notice. In fact, the provisions of Rule 57AH(2) of Central Excise Rules, 1944 or of Rule 13(2) of CENVAT Credit Rules, 2001/2002 have been designed to discourage fraudulent taking and utilization of CENVAT Credit and provide deterrent penalty for the same and penalty under these provisions would not be dependent upon whether the credit fraudulently taken had been utilized for payment of duty or not. We are supported in this view by the Apex Court's judgment in the case of Rajasthan Spinning and Weaving Mills reported in 2009 (238) E.L.T. 3 (S.C.) wherein Apex Court held that penalty under Section 11AC of Central Excise Act, 1944 would be attracted wherever the short payment, non-payment or erroneous refund of duty is for the reasons as mentioned in this section and it is not material as to whether the duty short paid, not paid or erroneously refunded had been paid by the assessee to the Government before the issue of show cause notice. Applying the ratio of this judgment, the penalty under Rule 57AH(2) of Central Excise Rules, 1944/13(2) of CENVAT Credit Rules, 2001/2002 for either taking or utilizing of CENVAT Credit wrongly by taking recourse to ....