By TIOL News Service

CHENNAI, FEB 17, 2014: THIS appeal by the revenue is directed against the final order No.574 of 2010 passed by the Customs, Excise and Service Tax Appellate Tribunal dated 21.5.2010 - (2010-TIOL-993-CESTAT-MAD) and the same has been admitted on the following substantial question of law:

"The Tribunal being creation of the Statute, whether it can traverse beyond the provisions of Cenvat Credit Rules, 2004, when the same has the force of a statute "

The Adjudicating Authority imposed penalty and demanded interest on the ineligible credit of Rs. 51,833/- taken by the assessee. Before the Tribunal, the assessee contested only the penalty and interest on the ground that credit was taken but not utilised. The Tribunal agreed and set aside the penalty and interest.

Revenue is in appeal before the High Court.

The High Court observed, " Admittedly, in the instant case, though the assessee availed credit, they have not utilised the same. Therefore, it cannot be taken to be a case where with an intention to evade payment of duty the assessee availed the credit. Though Rule 14 contemplates that Cenvat Credit taken shall be recovered from the manufacturer along with interest the facts of the present case are slightly different as there was no allegation that there was intention on the part of the assessee to evade payment of duty by wrongly availing the credit. Therefore, the provisions of Section 11AC of the Act could not have been invoked by the revenue for the purpose of levy of penalty. To that extent, the order of the Tribunal is confirmed."

The next question which falls for consideration is as to whether the assessee is liable to pay interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944?

The High Court referred to the case of Union of India vs. Ind-Swift Laboratories Ltd., reported in - (2011-TIOL-21-SC-CX), wherein the Supreme Court had held that on the happening of any of the three circumstances viz., credit taken or credit utilized wrongly or credit has been erroneously refunded, then such credit becomes recoverable along with interest.

The counsel for the assessee sought to distinguish the decision of the Hon'ble Supreme Court in the case of IND-SWIFT LABORATORIES LTD. by stating that, that was a case where the CENVAT credit was taken and utilized and not a case where CENVAT credit has been reversed as that of the case of the assessee herein. It is his further submission that reversal of credit would amount to "no credit" being taken. In this regard, reliance has been placed on the decision of Allahabad High Court in the case of Hello Minerals Water (P) Ltd., vs. Union of India reported in - (2004-TIOL-57-HC-ALL-CX), the decision of the Karnataka High Court in the case of Commissioner of C.Ex. & S.T., LTU. Bangalore vs. Bill Forge Pvt.Ltd reported in - (2011-TIOL-799-HC-KAR-CX) and the decision of the Hon'ble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. vs. Collector of C.Excise, Nagpur reported in - (2002-TIOL-41-SC-CX).

The High Court did not agree 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'be 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 done before the removal of the products. In such circumstances, the Courts considered the issue and said that for the purpose of extending the benefits of exemption notification, the time of reversal was not the material and reversal of the credit would amount to "no credit" being taken. In these decisions, Rule 14 or Section 11AB was not the subject matter for consideration. Therefore, these decisions relied upon by the learned counsel for the assessee are clearly distinguishable by facts, while read in the context of the facts and relevant notification which are applicable to the facts of the case.

The High Court held that the one and only decision which concerns about Rule 14 is the decision in the Ind-Swift case and so did not find any justifiable ground to accept the plea of the assessee.

Interest when no principal is due: The Counsel for the assessee submitted that interest is compensatory and that question of payment of interest would arise only where the principal is due. The Court rejected the arguments of the assessee. If one gets into the background of the scheme of Modvat Credit, his contention that the assessee has taken credit, does not merit consideration, particularly so, in the background of Rule 14. As it stands today, one has to go only by the provisions contained in Rule 14 and nothing beyond.

Smallness of amount involved - no bar for High Court: Another argument was taken by the respondent assessee that considering the smallness of the amount involved, as per the circular No.390/Misc./163/2010-JC dated 20th October 2010, the Revenue appeal should be dismissed.

The High Court did not agree with the said submission and by relying on the decision in CCE, Puducherry Commissionerate vs. CESTAT and Anr.,C.M.A.NOs.1308 of 2009 etc. where it was held that ‘irrespective of the monetary limit involved in such cases, if the substantial question of law raised demands consideration by this Court, such circular ought not to be interpreted or understood to stand in the way of this Court to consider the merits of the case' observed - "Therefore, the question of quantum of demand, should not be a going factor, more so, when a substantial question of law is involved in this appeal."

In fine, while confirming the order of the Tribunal in the matter of non-levy of penalty under Section 11AC, the High Court reversed the order of the Tribunal setting aside the interest.

Civil Miscellaneous Appeal is partly allowed.

(See 2014-TIOL-201-HC-MAD-CX)