By TIOL News Service

CHENNAI, SEPT 05, 2018: PURSUANT to an enquiry by the department in July 2011, it was pointed out that since depreciation of capital goods was availed u/s 32 of the Income Tax Act, 1961, CENVAT credit cannot be availed to the said extent and, therefore, the amount should be reversed.

This led to issuance of show cause notice by invoking the extended period of limitation.

The assessee contended that interest cannot be claimed since wrong availment itself does not create any liability of payment of excise duty.

The adjudicating authority confirmed the demand of CENVAT Credit of Rs.8,08,730/- by invoking the extended period of limitation and imposed equivalent penalty and interest.

Before the Commissioner (Appeals), the assessee contended that they were availing S.S.I. exemption under Notification No.8/2003-CE as amended and had taken CENVAT credit on capital goods received from July 2008 to March 2009 and the CENVAT credit taken was kept in balance in their CENVAT credit account in March 2009 and carried over up to March 2011.

The Commissioner (Appeals) relied on the decision of the Supreme Court in the case of Ind-Swift Laboratories Ltd. - 2011-TIOL-21-SC-CX and dismissed the appeal.

The Tribunal referred to the decision of the Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd. - 2007-TIOL-141-SC-CX and held that imposition of penalty of Rs.1,00,000/- will serve the interest of justice. While arriving at said conclusion, the Bench noted that the Revenue did not dispute that the assessee was an S.S.I. Unit and had not availed Cenvat credit; that capital goods credit only remained as book entry.

Revenue is in appeal before the Madras High Court against this CESTAT order.

The following are the substantial questions of law raised by Revenue –

(i) Whether the Hon'ble Tribunal has committed substantial error in law by waiving the demand of interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11 AB of the Central Excise Act when the legal position is settled by the Hon'ble Supreme Court in the case of Union of India Versus Ind-Swift Laboratories Ltd. - 2011-TIOL-21-SC-CX, that the word "OR" in between the expressions 'Taken or utilised wrongly or has been erroneously referred as the word "AND" on the happening of any of the three circumstances such credit becomes recoverable along with interest'?

(ii) Whether the Hon'ble Tribunal has committed substantial error by waiving the penalty to the extent of Rs.1,00,000/- against the equal penalty amounting to Rs.8,08,730/- under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 on the ineligible credit availed on the capital goods in view of the judgment in the Hon'ble Supreme Court in the case of Union of India versus Rajasthan Spinning & Weaving Mills in Civil Appeal Nos.3527 and 3525 of 2009 decided on 12.05.2009 - 2009-TIOL-63-SC-CX wherein it has been clarified that when the conditions spelled out under Section 11AC of the Central Excise Act, 1944 are fulfilled, there is no discretion to reduce the mandatory penalty equal to duty even though the duty is paid before the issue of Show Cause Notice?"

After considering the submissions, the High Court inter alia observed that it is not inclined to interfere with the order passed because the Revenue did not dispute the fact that the assessee is an S.S.I. and had not availed the Cenvat credit and the credit remained as an entry in the books; that therefore, on facts, it will be a very hard case for the Court to reverse the decision of the Tribunal, especially when the Revenue does not dispute the factual position. Insofar as the second substantial question of law is concerned, the High Court held that the same largely revolved around factual aspect and it is not inclined to upset the finding of the Tribunal in this regard.

However, the High Court decided the first substantial question of law cited at (i) above.

It was observed that the apex court decision in Bombay Dyeing & Manufacturing Co. Ltd. (supra) could not have been applied to the facts and circumstances since the said decision arose out of an exemption Notification No.14/2002-CE and in that case the assessee took credit, which was never utilized and before utilization, entry has been reversed which amounts to not taking credit.

The respondent assessee referred to the decision in the case of Strategic Engineering (P) Ltd. - 2014-TIOL-466-HC-MAD-CX wherein the Division Bench (Madurai Bench) took note of the judgment of the Supreme Court in the case of Ind-Swift Laboratories Ltd. (supra) as well as the amendment substituting word "or" with the word "and" in rule 14 of CCR, 2004 and held that it was clear that mere taking (of credit) itself would not compel the assessee to pay interest as well as penalty and the subsequent amendment has given befitting answers to all doubts, which existed earlier.

The High Court observed that it is unable to agree with the said observations made in Strategic Engineering (P) Ltd. (supra) as the amendment is not clarificatory to be held to be retrospective.

It is further observed that in Sundaram Fasteners Limited - 2014-TIOL-201-HC-MAD-CX involving identical issue it was held that interest is payable in terms of rule 14 of CCR, 2004 and this decision dated 30.01.2014 was not apparently placed before the (Madurai) Division Bench in the case of Strategic Engineering (P) Ltd. (supra), which decision was rendered on 10.02.2014.

The High Court added -

"16. …, the amendment to the statute not being clarificatory cannot be retrospective. Thus, an amendment to a statute done prospectively cannot be interpreted to be an answer to doubts which had arisen earlier to the amendment. Thus, we are not persuaded to apply the decision in Strategic Engineering (P) Ltd. (supra).

17. It is submitted by the learned counsel for the assessee that the amendment to Rule 14 of CCR, 2004 was not placed before the Division Bench in Sundaram Fasteners Limited (supra). As pointed out earlier, the amendment can have no impact on the present proceedings, as admittedly, the period in question is between July, 2008 to March, 2009. In any event, as observed by us earlier, the amendment cannot be treated to have retrospective effect and an amendment to a statute, which has been given prospective effect, cannot be used as an aid to interpret the statutory provision, which existed prior to the amendment, unless and until it is held to be clarificatory. No such argument was advanced before us to state that the amendment to Rule 14 of the CCR, 2004 was clarificatory in nature."

In fine, the first substantial question of law, was answered in favour of the Revenue and against the assessee.

However, the appeal of the Revenue, for the reasons assigned, is dismissed and the order of the Tribunal is confirmed.

(See 2018-TIOL-1820-HC-MAD-CX)