Interest for wrongly taken cenvat credit u/r 14 of ccr

Manish K.Gandhi (Superintendent) (966 Points)

03 December 2014  

Interest payable on wrongly taken Cenvat Credit before 17.03.2012, even not utilized- Rule 14 of Cenvat Credit Rules’2004:

 

A doubt is prevailing whether interest is payable for wrongly taken Cenvat Credit which is not utilized and lying in balance, before the 17.03.2012 the date when Rule 14 is amended.

 

Before 17.03.2012, Rule 14 was as under.

 

Rule 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.

 

However, vide Notification 18/2012-CE(NT) dt. 17.03.2012, the words “taken or utilised wrongly” is substituted with word “taken and utilized wrongly”. Also, the words “and 11AB” is substituted with word “and 11AA” the words hence Rule 14 since 17.03.2012 is like as under.

 

Rule 14. Recovery of CENVAT credit wrongly taken or erroneously refunded.- Where the CENVAT credit has been taken and 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 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

 

Section 11AB of the Central Excise Act, 1944 (relevant Portion);

(now covered in Section 11AA)

“Interest on delayed payment of duty. - (1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay the duty as determined under sub-section (2), or has paid the duty under sub-section (2B), of Section 11A, shall, in addition to the duty, be liable to pay interest at such rate …. of Section 11A till the date of payment of such duty :

 

For the issue, specific judgments are as under.

 

(i)               Union Of India Versus Ind-Swift Laboratories Ltd. [2011 (265) E.L.T. 3 (S.C.)]

Rule 14 of Cenvat Credit Rules, 2004 specifically providing for interest when Cenvat credit taken or utilized wrongly or erroneously refunded hence interest on irregular credit arises from date of taking such credit.

No reason to read the word “or” appearing in Rule 14 ibid between expressions ‘taken’ or ‘utilised wrongly’ or ‘has been erroneously refunded’ as “and” by way of reading it down - Credit recoverable with interest on happening of any of the three specified circumstances

 

(ii)             Commr. of C. Ex. & S.T., Bangalore Versus Bill Forge Pvt. Ltd. [2012 (26) S.T.R. 204 (Kar.)]

In the said judgment, the Hon’ble High Court has also discussed judgment of Chandrapur Magnet Wires (P) Ltd, CCE Vs Ashima Dyecot Ltd and Bombay Dyeing & Mfg. Co. Ltd. and the gist of the same are reproduced below.

 

  1. Chandrapur Magnet Wires (P) Ltd. Vs CCE, Nagpur [1996 (81) ELT 3 (S.C.)]

Exemption to specified goods subject to the condition that no Modvat credit taken on the inputs used in their manufacture. Reversal of Modvat credit permissible to avail exemption. On reversal of such Modvat credit the assessee cannot be said to have taken credit of duty on the inputs utilised in the manufacture of exempted final product

 

  1. CCE Vs Ashima Dyecot Ltd [2008 (232) E.L.T. 580 (Guj.)]

Reversal of credit whether equal to non-availment - Exemption under Notification Nos. 29/2004-C.E. and 30/2004-C.E. availed - Notification No. 30/2004-C.E. specific about non-availment of Cenvat credit on inputs when exemption availed. Reversal of credit amounts to non-availment as per High Court ruling in 2004 (174) E.L.T. 422 (All.)

 

  1. CCE, Mumbai-I Vs Bombay Dyeing & Mfg. Co. Ltd. [2007 (215) E.L.T. 3 (S.C.)]

Exemption subject to condition of non taking of Cenvat credit - Credit taken but before utilisation credit reversed - Amounts to not taking credit

 

In the said judgment, the Hon’ble High Court also referred judgment of Ind-Swift Laboratories Ltd (supra) was considered in para 17 & 18 of the judgment, to the extent that,

 

17.          …….Apex Court held that Rule 14 specifically provides that where Cenvat 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. If the aforesaid provision is read as a whole, we find no reason to read the word ‘OR’ in between the expression ‘taken’ or ‘utilized wrongly’ or ‘has been erroneously refunded’ as the word ‘AND’. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest…..

 

18. In view of the aforesaid authoritative pronouncement of the Apex Court, the word ‘OR’ found in Rule 14 cannot be read as ‘AND’. Further, once the credit is taken or utilized wrongly or has been erroneously refunded, such credit becomes recoverable along with interest…..

 

However subsequent paras, it is held that,

 

20.          From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. …….. Actually, the credit is taken, at the time of the removal of the excisable product.

               

21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to pay interest. Section 11AB of the Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person liable to pay duty, shall in addition to the duty is liable to pay interest. Section do not stipulate interest is payable from the date of book entry, showing entitlement of Cenvat credit. Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly.

               

Thus, the Hon’ble High Court , initially relied on judgment of Ind-swift laboratory given by the Apex court, but later on has taken contrary view than the Hon’ble Supreme Court. In fact, the judgments of Chandrapur Magnet Wires (P) Ltd, CCE Vs Ashima Dyecot Ltd and Bombay Dyeing & Mfg. Co. Ltd., the issue ion the above referred judgments, was not levy interest under Rule 14 of CCR on wrongly taken Cenvat Credit, but are availment of benefit of conditional exemption wherein condition is non-availment of Cenvat Credit and wherein it is held that in case the assessee has availed Cenvat Credit but want to avail exemption benefit, if Cenvat Credit is reversed, it can be considered as non-availment of Cenvat Credit and benefit of exemption notification may be availed.

 

Analysis:

Before discussing the aspect, meaning of some words used in the Rule 14 of CCR is required to be understood, as under.

 

Meaning of Mutatis mutandis:

(i) “Changing [only] those things which need to be changed” or more simply ‘[only] the necessary changes having been made

(ii) The Necessary change. This is phrase of frequent practical occurrence, meaning that matter or things are generally the same, but to be altered, when necessary, as to name, office or the likes.

Meaning of Avail: (v) to use or take advantage of, (n) use or benefit

Meaning to Taken: Past Participle of Take,

Meaning of Take: To hold, grasp, grip, seize, capture, catch ,get ,derive, remove, obtain

 

Rule 14 of CCR’2004 has in-built provision of interest in case of Cenvat Credit is taken or utilized wrongly(before 17.03.2012) and itself is competent to levy of interest on wrongly taken or utilized Cenvat Credit. Taken and utilized both words indicate different action. It is significant that word “utilized’ or “availed” is not used in the Rule.

 

The plea, that merely entry in books of account can not be considered as “taken”, is not appears as correct as Cenvat Credit is not a thing which can be taken physically and put in pocket then only be considered as “taken”. For Cenvat Credit the only method to take credit is to take its entry in Books of Account or Cenvat Credit Account. Thus, considering meaning of “taken”, entry in books is sufficient and its utilization is not necessary. In case, the same is utilized also, it can be said as “availed” in terms of above given meaning.

 

If, it is accepted that anything taken can be considered only when the same is used/utilized, think for a thief who steal any amount or thing but caught before he can get benefit thereof by using the same. In the situation, can it be said that thief has not taken amount or thing? The answer is NO.

 

Second plea that Section 11AB (since APR-2011, 11AA) deal with levy of interest in case of duty not levied, paid etc., and this is not case of not levy or payment of duty etc. also not appears as correct as legislation was well-aware of the fact hence the word “mutatis mutandis” is used in Rule 14 for invocation of Section 11AB. Rule 14 itself is competent for levy of interest however for recovery Section 11AB is used with word mutatis mutandis i.e. Section 11AB is used with necessary change for recovery under Rule 14 of CCR’2004.

 

One more plea that in absence of duty with-held, no interest is leviable also not appears as correct as legislation made in-built provision for interest in Rule 14 of CCR’2004 so that case of Cenvat Credit taken wrongly, with intent to use for payment of duty/tax, itself is an offence and the said interest is nothing but having nature of penalty. If Cenvat Credit taken wrongly but later on the same is reversed, suo-moto, the malafide intention should not be condoned. It is not necessary to restrict meaning of interest as compensation of any amount withheld. The use of word “interest” instead of “penalty” can not nullify the gross purpose of Rule.

 

Accordingly, it appears that in case of Cenvat Credit taken wrongly before 17.03.2012, but not utilized for payment of C.Ex.Duty or Service Tax, interest is required to be paid till 16.03.2012.

 

This is my views based on available information/Act/Rule/Judgments etc. and the same can not be final views. Learned Experts is requested to offer their  Valuable guidance/views/ comment in the matter.