By TIOL News Service

MUMBAI, APRIL 24, 2018: THE appellants are engaged in the sale of readymade garments manufactured by them as well as trading goods. They are availing Cenvat credit in respect of common input service, which are used for both types of clearances.

The case of the department is that in respect of traded goods, being an exempted service, appellant is require to pay an amount equal to the Cenvat credit attributable to the traded goods in terms of Rule 6(3A) of CCR, 2004.

The appellant reversed the amount of Rs.81,75,709/- as required under Rule 6(3A) of CCR, 2004 but did not discharge the interest payable thereon.

The adjudicating authority held the interest amount as payable, which the appellant did not agree and, therefore, an appeal came to be filed before the CESTAT.

The appellant submitted that interest u/s 11AB/11AA of CEA, 1944 in terms of rule 14 of CCR cannot be demanded as availment of credit is not erroneous; that there has been no short payment of duty. It is further submitted that in absence of invokability of Section 11A or Rule 14, provision of Rule 6(3A)(e) of the CCR, cannot be invoked being delegated legislation. Also, in any event, interest is not payable for the year 2011-12 and 2012-13 as the same is beyond the normal period, the appellant argued.

Rule 6(3A)(e) of CCR, 2004, application of which lead to the demand of interest reads -

(e) the manufacturer of the goods or provider of output service was in addition to the amount short paid, be liable to pay interest @ 24% per annum from the due date i.e. 30 June till the date of payment where the amount short paid, is not paid within the said due date.

After extracting the above, the CESTAT observed thus –

++ The above provision of interest is in respect of amount payable under the provision of Rule 6(3A), aforesaid provision is explicit, therefore in terms of Rule 6(3A)(e) of Cenvat Credit Rules, 2004 interest is legally chargeable.

++ I agree with the appellant that interest is not chargeable under rule 14 and section 11AA, however, for specific purpose for payment of an amount under rule 6(3A), the charging provision of interest was created as per the Rule 6(3A)(e).

++ By any stretch of imagination, if the submission of the appellant is accepted that the interest is not chargeable, the provision of Rule 6(3A)(e) shall stand redundant, which is not intention of legislation.

++ As regard the submission of the appellant that demand pertains to the longer period, therefore, interest for the period 2011-12 and 2012-13 is not chargeable is not acceptable for the reason that appellant have admittedly reversed the amount under Rule 6(3A). Once the amount is admittedly reversed, interest shall be chargeable as piggy back of the principal amount, therefore appellant cannot get relief on limitation.

Holding that the appellant is liable to pay interest on the amount of Rs.81,75,709/-, the impugned order was upheld and the appeal was dismissed.

(See 2018-TIOL-1302-CESTAT-MUM)