Interest not payable if Cenvat Credit wrongly taken is not utilized – Rule 14 of CCR, 2004 goes in for facelift

By TIOL News Service

NEW DELHI, MAR 16, 2012: RULE 14 of the CCR, 2004 has been amended and for once it is for the good of the assessees –

The Rule as it stands reads –

“14. Recovery of CENVAT credit wrongly taken or erroneously refunded .- Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.”

The small conjunction “or” was the reason for years of debate.

The CBEC had vide Circular No. 897/17/2009-CX., dated 3-9-2009 clarified that in the light of clear and unambiguous provisions of Rule 14 of the CENVAT Credit Rules, 2004, the interest shall be recoverable when credit has been wrongly “taken”, even if it has not been utilized.

The Punjab & Haryana High Court in the case of Ind-Swift Labs [ 2009-TIOL-440-HC-P&H-CX ] had held that under provisions of Rule 14 of CENVAT Credit Rules, 2004, interest cannot be claimed from the date of wrong availment of credit; it is required to be paid from the date it is wrongly utlilized.

In departmental appeal, the Apex Court vide its judgement dated 21-2-11 in Civil Appeal No. 1976 of 2011 [ 2011-TIOL-21-SC-CX ] set aside the aforesaid order of High Court by holding that – “ interest is payable from the date of taking credit, not utilizing it ”. The Supreme Court ruled that “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.”

Never before has any departmental Circular been issued with amazing speed as Circular no. 942/3/2011-CX dated 14.03.2011 communicating the “favourable” decision and exhorting officers to take immediate action to safeguard revenue.

Now, that is all history!

The magnanimity of the Central government is evident by the amending notification 18/2012-CE(N.T), dated 17 th March, 2012 and made effective as far as rule 14 is concerned from 17 th March, 2012 itself.

It reads –

“ (a) for the words “taken or utilised wrongly”, the words “taken and utilised wrongly” shall be substituted.

So, now, the “AND” or “OR” dispute fades into oblivion!