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May 2014

Controversy: Interest on Cenvat Credit Wrongly Taken and (or) Utilised

By Puloma Dalal
Bakul B. Mody Chartered Accountants
Reading Time 35 mins
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Background

The issue whether interest is leviable at the point of time when the CENVAT Credit is wrongly taken or at the point of utilisation has been a matter of extensive judicial considerations. Further, an important amendment was made in Rule 14 of the CENVAT Rules through Notification dated 17-03-2012. This subject was discussed in the June 2012 issue of the BCAJ in the backdrop of an important ruling of the Karnataka High Court. However, subsequent to the said ruling, divergent views have been expressed by different judicial authorities (in particular recent ruling of CESTAT – Mumbai). Hence, since the issue has become highly controversial, the same is being discussed hereafter in the backdrop of divergent judicial rulings.

Relevant Statutory Provisions

• Rule 14 of CENVAT Credit Rules, 2004 (“CCR”)

” Where the CENVAT Credit has been taken or utilised wrongly or has been erroneously refunded, the same along with the interest shall be recovered from the manufacturer or provider of the output service and the provisions of the 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.”

[Note – The words “taken or utilised wrongly” have been substituted by the words “taken and utilised wrongly vide Notification No. 18/2012 – CE(NT) dated 17-03-12]

• Rule 4(1) of CCR

“The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in factory of the manufacturer or premises of provider of output service………..”

• Rule 4(2) (a) of CCR

“The CENVAT Credit in respect of capital goods …….. at any point of time in a given financial year shall be taken only for an amount not exceeding 50 % of duty paid on such capital goods in the same financial year.“

• Rule 4(7) of CCR

“The CENVAT Credit in respect of input service shall be allowed, on or after the day on which payment is made of the value of input service and service tax paid or payable as indicated in Invoice…………”

Analysis of Credit ‘wrongly’ ‘taken’ / ‘utilised’

To understand the difference (if any) between the terms ‘wrongly’ ‘taken’ and ‘utilised’, the meanings attributed to these words used in Rule 14 of CCR is given hereafter for ready reference :

• ‘Taken’ means “to gain or receive into possession, to seize, to assume ownership” (Black’s Law Dictionary).
• ‘To take’, signifies “to lay hold of, grab, or seize it, to assume ownership etc.” (Advance Law Lexicon – 3rd Edition).
• ‘Utilise’ means “to make practical and effective use of” (Compact Oxford Dictionary Thesaurus).
• ‘Utilise’ means “to make use of, turn to use” (The Chambers Dictionary).
• ‘Wrongful’ – “characterised by unfairness of injustice, contrary to law” (Concise Oxford Dictionary)
• ‘Wrong’ – “any damage or injury, contrary to right, violation of right or of law” (P. Ramanatha Aiyer’s Law Lexicon)

Reversal of CENVAT Credit before Utilization – Settled Position

• In a landmark ruling in Chandrapur Magnet Wires (P) Ltd. vs. CCE (1996) 81 ELT 3 (SC), it has been held by the Supreme Court that, when the MODVAT Credit taken is reversed, it would mean that the MODVAT Credit has not been taken at all. This principle is relevant for the CENVAT Credit as well. Relevant observations of the Supreme Court are reproduced hereafter :

Para 7

In view of the aforesaid clarification by the department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in the manufacture of these goods.

The above stated principle laid down by the Supreme Court has been followed in a large number of cases. [For e.g. CCE vs. Ashima Dyecot Ltd. (2008) 232 ELT 580 (GUJ)].

Similarly, the said principle was also asserted by the Hon. Supreme Court in CCE, Mumbai vs. Bombay Dyeing & Mfg. Co. Ltd. 2007 (215) ELT 3 (SC) wherein it was held “whenever duty is paid on the input, the assessee is entitled to credit under CENVAT Credit Rules, 2002 however availment of credit takes place later on when the assessee makes adjustments of duty paid on input against duty paid on final product. In the present case, before the account could be debited and before the assessee could avail CENVAT Credit, assessee has reversed CENVAT Credit which would amount to the assessee not taking credit for duty paid on input. Learned counsel submitted that the assessee was free to reverse the credit before utilization of such credit.” This decision was also accepted by the Gujarat High Court in CCE vs. Dynaflex Ltd. 2011 (266) ELT 41 (Guj).

Department clarification

The CBEC had vide Circular No. 897/17/2009 – CX, dated 03-09-2009 has clarified as under:

“The Tribunal decision and the High Court judgment referred to above, was delivered in the context of erstwhile Rule 57 I of the Central Excise Rules, 1944 and that the Supreme Court order under reference is only a decision and not a judgment. Since, the Rule 14 of the CENVAT Credit Rules, 2004, is clear and unambiguous in the position that interest would be recoverable when CENVAT Credit is taken or utilised wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even, if it has not been utilised, in terms of wordings of the present Rule 14.”

It may be noted that erstwhile Rule 57 I of the Central Excise Rules, 1944 did not specifically provide for any interest payment along with reversal of wrongly taken credit while present Rule 14 of CCR provides for payment of interest along with the reversal of wrongly taken credit.

Interest on Credit taken but not utilized – Judicial Views

• In CCE vs. Maruti Udyog Ltd. (2007) 214 ELT 173 (P & H)], the Hon’ble Punjab & Haryana Court agreed with the views of the Hon’ble CESTAT that the assessee was not liable to pay interest as the credit was only taken as entry in the MODVAT record and was in fact not utilised. The SLP filed by the revenue against this order of the Hon’ble Punjab & Haryana High Court was dismissed by the Hon’ble Supreme Court (2007) 214 ELT A 50 (SC) on 10-10-2006.

In the case of Maruti Udyog, the assessee claimed the Modvat credit which was not allowable in the absence of the requisite certificate under Rule 57E of the Central Excise Rules, 1944 being produced within six months but still the assessee claimed the same and credited the amount in RG – 23A Part II. The authorities disallowed the Modvat credit relying upon judgment of the Hon’ble Supreme Court in Osram Surya (P) Limited vs. Commissioner of Central Excise, Indore (2002) 142 ELT 5 (SC).

The Tribunal, however, had held that the assessee was not liable to pay interest as the credit was only taken as an entry in the Modvat record and was not in fact utilised. The Tribunal held that in absence of utilisation of credit, the assessee was not liable to pay interest.

The P & H High Court held as under :

“Learned Counsel for the appellant is unable to show as to how the  interest  will  be  required to be paid when in absence of availment of Modvat Credit in fact, the assessee was not liable to pay any duty. The Tribunal has clearly recorded a finding that the assessee did not avail of the Modvat Credit in fact and had only made an entry.

In view of this factual position, we are unable to hold that any substantial question of law arises”.

•    Attention is particularly drawn to the ruling of the Punjab & Haryana High  Court  in  the  case of Ind – Swift Laboratories Ltd. vs. UOI (2009) 240 ELT 328 (P & H), relevant extracts from which, are reproduced hereafter for reference:

Para 9

•    The Scheme of the Act and the CENVAT Credit Rules framed thereunder permit a manufacturer or producer of the final products  or a provider  of taxable service to  take  the  CENVAT  Credit in respect of duty of excise and such other duties as specified. The conditions for allowing the CENVAT Credit are contained in Rule 4 of  the Credit Rules contemplating that the CENVAT Credit can be taken immediately on receipt of the inputs in the factory of  the  manufacturer or in the premises of the provider of output service. Such CENVAT Credit can be utilised in terms of Rule 3(4) of Credit Rules  for payment of any duty of excise on any final product  and  as contemplated in the aforesaid sub-rule. It, thus, transpires that the CENVAT credit is the benefit of duties leviable or paid as specified in Rule 3(1) used in the manufacture of intermedi- ate products etc. In other  words,  it  is  a  credit of the duties already leviable or paid. Such credit in respect of duties already paid can be adjusted for payment of duties payable under the Act and the Rules framed thereunder. U/s. 11AB of the Act, liability to pay interest arises     in respect of any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded from the first day of the month in which the duty ought to have been paid. Interest is leviable if duty of  excise has not been levied or paid. Interest can be claimed or levied for the reason that there is delay in the payment of duties. The interest is compensatory in nature as the penalty is charge- able separately.

Para 10

•    In Pratibha Processors vs. Union of India, 1996
(88)  ELT  12  (SC)  =  (1996)  11  SCC  101,  it  was  held that  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.  Similarly,  in  Commissioner  of  Customs vs.  Jayathi  Krishna  &  Co.  –  2000  (119)  ELT  4(SC) (2000)  9  SCC  402,  it  was  held  that  interest  on warehoused goods is merely an accessory to the principal  and  if  the  principal  is  not  payable,  so is  it  for  interest  on  it.  In  view  of  the  aforesaid principle,  we  are  of  the  opinion  that  no  liability of  payment  of  any  excise  duty  arises  when  the petitioner availed the CENVAT Credit. The liability to pay duty arises only at the time of utilisation. Even  if  the  CENVAT  Credit  has  been  wrongly taken, that does not lead to the levy of interest as a liability of payment of excise duty does not arise  with  such  availment  of  the  CENVAT  Credit by an assessee. Therefore, interest is not payable on  the  amount  of  the  CENVAT  credit  availed  of and  not  utilised.

Para 11

•    Reliance of respondents on Rule 14 of the Credit Rules that interest u/s. 11AB of the Act is payable even if the CENVAT Credit has been taken.  In our view, the said Clause  has to be read down  to mean that where the CENVAT Credit taken and utilised wrongly. Interest cannot be claimed simply for the reason that the CENVAT  credit has been wrongly taken as such availment by itself does not create any  liability  of  payment of excise duty. On a conjoint reading of section 11AB of the Act and that of Rules  3  and  4  of the Credit Rules, we hold that interest cannot  be claimed from the date of wrong availment   of the CENVAT Credit. The interest shall be pay- able from the date the CENVAT Credit is wrongly utilised.

•    In an important ruling the Supreme Court,  in  the case of Ind-Swift Laboratories Ltd. (2011)  265 ELT 3 (S.C.)], set aside the order passed by the  Punjab  &  Haryana  High  Court  (2009)  240 ELT  328  (P  &  H)]  on  the  question  of  charging interest  on  the  CENVAT  Credit  wrongly  taken, but  not  utilised.  By  interpreting  the  expressions and  words  used  in  the  provisions  of  Rule  14  of CCR,   the Supreme Court concluded that interest is  payable  on  the  CENVAT  Credit  wrongly  taken even  if  such  Credit  has  not  been  utilised.

The issue for consideration is whether an assessee can be made liable to pay interest for taking wrong credit if such credit has not been utilised inasmuch he has not derived any  benefit  out  of his wrong action.

The more important observations of the Supreme Court are reproduced hereafter for ready reference:

“17. Xxxxxxxxxx In our considered opinion, the High Court misread and misinterprets the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared un- constitutional or illegal. Rule 14 specifically provides that where the CENVAT Credit has been taken or utilised would be recovered from the manufacturer or the provider of the output service.  The issue is  as to whether the aforesaid word “OR”  appear- ing in Rule 14, twice,  could  be  read  as  “AND” by way of reading it down as has been done by    the High Court. If the aforesaid provision is read    as a whole we find no reason to read the word “OR” in between the expression ‘taken’ or ‘utilised 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. We do not feel that any other harmonious con- struction is required to be given to the aforesaid expression/provision which is clear and unambigu- ous as it exists  all by itself. So far as section  11AB    is concerned, the same becomes relevant and ap- plicable for the purpose of making recovery of the amount due and payable. Therefore, the High Court erroneously held that interest cannot be claimed from the date of wrong availment of the CENVAT Credit and that it should only be payable from the date when the CENVAT Credit is wrongly utilised. Besides, the rule of reading down is in itself  a Rule of harmonious construction in a different name. It is generally utilised to straighten the crudities or ironing out the creases to make a statue workable. This court has repeatedly laid down that in the  garb of reading down a  provision  it  is  not  open to read words and expressions not found in the provision statute and thus venture into a kind of judicial legislation. It is also held by this Court that the Rule of reading down is to be used for the limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute.

The interpretation made by the Honorable Supreme Court considering the specific circumstances of a case involving evasion of duty,  has been a matter  of extensive deliberation by the experts and rightly so inasmuch as, if the same is applied generally, it would mean unsettling the settled law.

•    Important judgment of Karnataka High Court in CCE & ST vs. Bill Forge  Pvt. Ltd. (2012) 26 STR 204 (KAR) [Bill Forge Case]

?  However, observations of the Karnataka High Court  in  the  Bill  Forge  case  are  very  impor- tant,  inasmuch  not  only  has  it  distinguished facts  of  the  case  of  UOI  vs.  Ind-Swift  Labo- ratories  Ltd.  (2011)  265  ELT  3  (SC)  but  it  has made  a  fine  distinction  between  making  an entry in the register and credit being ‘taken’ to  drive  home  the  point  that  interest  is  pay- able  only  from  the  date  when  duty  is  legally payable  to  the  Government  and  the  Govern- ment  would  sustain  loss  to  that  extent.

? In the Bill Forge case, the High Court referring to the Apex Court’s judgment in case of UOI vs. Ind-Swift Laboratories Ltd. observed as under:

Para 18

“In fact, in the case before the Apex Court, the assessee received inputs and capital goods from various manufacturers/dealers and availed the CENVAT Credit on the duty paid on such  materi- als. The investigations conducted indicated that the assessee had taken the CENVAT Credit on fake invoices. When proceedings were initiated, the assessee filed applications for settlement of proceedings and the entire matter was placed before the Settlement Commission. The Settlement Commission held that a sum of Rs. 5,71,47,148.00 is the  duty  payable  and  simple  interest  at  10%  on  the CENVAT  Credit  wrongly  availed  from  the  date  the duty became payable as per section 11AB of the Act till  the  date  of  payment.  The  Revenue  calculated the said interest upto the date of the appropriation of  the  deposited  amount  and  not  upto  the  date  of payment.  Therefore,  it  was  contended  that  inter- est  has  to  be  calculated  from  the  date  of  actual utilisation  and  not  from  the  date  of  availment. Therefore,  an  application  was  filed  for  clarification by  the  assessee.  The  said  application  was  rejected upholding  the  earlier  order,  i.e.  interest  is  payable from  the  date  of  duty  becoming  payable  as  per section  11AB.  Therefore,  the  Apex  Court  interfered with the judgment of the Punjab and Haryana High Court  and  rightly  rejected  by  the  Settlement  Com- mission  as  outside  the  scope  and  they  found  fault with  the  interpretation  placed  on  Rule  14.”

“It is also to be noticed that in the aforesaid  Rule, the word ‘avail’ is not used. The words used are ‘taken’ or “utilised wrongly”. Further the said provision makes it clear that the interest shall be recovered in terms of section 11A and 11B of the Act………”

Para 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……… Before utilisation of such credit, the entry has been reversed, it amounts to not taking credit.”

para 22

“Therefore interest is payable from that date though in fact by such entry the Revenue  is  not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words,  he did not take the advantage of wrong entry. He did not take the CENVAT Credit or utilised the CENVAT credit. It is in those circumstances that the Tribunal was justified in holding that, when the  assessee has not taken the benefit of the CENVAT Credit, there is no liability to pay  interest.  Before  it  can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the CENVAT credit was not available. Therefore, the said judgment of the Apex Court* has no application to the facts of this case It is only when the assessee  had taken the credit, in other words by taking such credit, if he had not paid the duty which is legally  due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises u/s. 11AB, in order to compensate the Government which was deprived of the duty  on  the date it became due.”

•    The ruling of Karnataka High Court in Bill Forge case, has been followed in large number of subsequent decided cases For e.g.:

?  CCE  vs.  Pearl  Insulation  Ltd.  (2012)  27  STR  337 (KAR)

?  CCE vs. Gokuldas Images (P) Ltd. (2012) 28 STR 214  (KAR)

?  Sharvathy  Conductors  Pvt.  Ltd.  vs.  CCE  (2013) 31  STR  47  (Tri  –  Bang)

?  CCE  vs.  Sharda  Enargy  &  Minerals  Ltd.  (2013) 291  ELT  404  (Tri  –  Del)

?  Gary Pharmaceuticals (P) Ltd vs. CCE (2013) 297 ELT  391  (Tri  –  Del)

?  CCE  vs.  Balrampur  Chinni  Mills  Ltd.  (2014)  300 ELT  449  (Tri  –  Del)

However, in many cases, [For e.g., CCE vs. Kay Bouvei Engineering Pvt. Ltd.  (2014)  301  ELT 100  (Tri –  Mum- bai)], the Bill Forge case has not been followed and instead,  the  position  held  by  the  Supreme  Court  in Ind  Swift  case  followed.

Important amendment in Rule 14 of CCR

In  a  very  significant  amendment  in  Rule  14  of  CCR, with  effect  from  17-03-2012,  the  words  CENVAT Credit  has  been  “taken  or  utilised  wrongly”  has been  substituted  by  the  words  “taken  and  utilised wrongly”.

This amendment strongly reinforces the interpreta- tion placed by the  Punjab  &  Haryana  High  Court in Maruti Udyog & Ind Swift Laboratories and Karnataka High Court in the Bill Forge case to the effect that, no interest can be recovered in cases where the CENVAT Credit has been wrongly taken but not utilised by an assessee.

Recent  Tribunal  Ruling  in  Balmer  Lawrie  &  Co.  Ltd vs.  CCE  (2014)  301  ELT  573  (Tri  –  Mumbai)

This  ruling  is  very  important  inasmuch  as,  it  not only  distinguishes  the  Karnataka  High  Court  ruling in  the  Bill  Forge  case,  but  it  also  discusses  the applicability  of  the  amendment  in  Rule  14  of  CCR vide  Notification  dated  17-03-2012.

In  this  case,  the  appellant  is  a  manufacturer  of lubricating  oil  availing  the  Cenvat  Credit  on  various inputs  and  capital  goods  as  provided  for  under (CCR).  They  availed  the  Cenvat  Credit  amounting to  Rs.  1,61,04,675/-  of  the  CVD  paid  on  imported base  oil.  The  base  oil  so  obtained  on  which  credit was  taken,  was  returned  by  the  appellant  to  M/s. VCL  and  M/s.  Ultraplus  Lube  Pvt.  Ltd.  and  the  ap- pellant  paid  excise  duty  equivalent  to  the  credit taken  on  such  base  oil  returned.  The  department was  of  the  view  that  the  taking  of  credit  by  the appellant  was  not  permitted  under  law  inasmuch as  the  goods  were  not  intended  for  use  in  the manufacture  of  excisable  goods  and,  therefore, credit  was  not  admissible  under  CCR  ab  initio.  Ac- cordingly,  a  show  cause  notice  dated  02-06-2008 was  issued  to  the  appellant  proposing  to  recover the  credit  taken  along  with  interest  thereon  under the provisions of Rule 14 of the CCR read with Sec- tion  11A(1)  and  section  11AB  of  the  Central  Excise Act,  1944.  It  was  also  proposed  to  impose  penalty on  the  appellant  under  Rule  15  of  the  said  Rules read  with  section  11AC  of  the  said  Central  Excise Act.  The  said  notice  was  adjudicated  and  duty  de- mand was confirmed by denying the Central Excise credit  of  Rs.  1,61,04,675/-  and  interest  on  the  said credit wrongly taken was also confirmed. A penalty of equivalent amount was also imposed on the ap- pellant  under  Rule  15  of  Cenvat  Credit  Rules,  2004 read  with  section  11AC  of  the  said  Act.  In  addition, a  fine  of  Rs.  1  crore  was  imposed  on  the  goods i.e.,  base  oil  on  the  grounds  that  the  same  was liable  to  confiscation  and  hence,  fine  is  imposable u/s.  34  of  the  Central  Excise  Act,  1944.

The Learned Counsel for the appellant submitted that inasmuch as the appellant had reversed the credit taken at the time of clearance of the base   oil to M/s. VCL and Ultraplus Lube Pvt. Ltd., the question  of  reversal  of  credit  once  again  does  not arise and, therefore, the demand is not sustainable. It  was  further  pointed  out  that  the  appellant  had reflected  the  taking  of  the  Cenvat  Credit  on  base oil  received  from  VCL  in  their  monthly  ER-1  returns and,  therefore,  the  department  was  aware  of  the fact of taking of Cenvat credit by the appellant and hence  no  suppression  of  facts  on  the  part  of  the appellant could be alleged. It is also argued that the said  credit  was  available  in  the  books  of  accounts of  the  appellant  during  the  entire  period  and  the appellant  had  never  utilised  the  credit.  Therefore, the question of liability to pay any interest thereon would  not  arise  at  all.  Reliance  was  placed  on  the decisions  of  the  Hon’ble  Karnataka  High  Court  in the  case  of  CCE  &  S.T.  vs.  Bill  Forge  Pvt.  Ltd.  (2012) 26  STR  204  (KAR);  CCE  vs.  Gokaldas  Images  (P)  Ltd. (2012)  28  STR  214  (KAR);  &  CCE  vs.  Pearl  Insulation Ltd.  (2012)  27  STR  337  (KAR.)  and  the  decisions  of the  Hon’ble  High  Court  of  Allahabad  in  the  case of  CC  &  Central  Excise,  Meerut  vs.  Rana  Sugar  Ltd. (2010) 253 ELT 366 (ALL). The Learned Counsel has further contended that Rule 14 of the Cenvat Credit Rules,  2004,  was  amended  vide  a  Notification  No. 18/2012-C.E.  (N.T.),  dated  17-03-2012  WHEReby  the phrase  “Cenvat  credit  has  been  taken  or  utilised wrongly”  was  substituted  by  the  words  “Cenvat credit  has  been  taken  and  utilized  wrongly”.  Since the  words  have  been  substituted,  the  substitution will have retrospective effect and, therefore, unless the  appellant  utilises  the  credit,  the  question  of recovery of Cenvat credit or interest thereon would not  arise.  Reliance  was  placed  on  the  decisions  of Supreme Court in Indian Tobacco Association (2005) 187 ELT 162  (SC) and W.P.I.L. Ltd. vs. CCE  (2005)  181 ELT  359  (SC)  in  support  of  this  proposition.
 
The  Honorable  Tribunal  held  as  under:  Para  5.2
The  next  issue  for  consideration  is  whether  the appellant  is  liable  to  pay  any  interest  on  the  credit taken.  During  the  period  involved,  Rule  14  of  the Cenvat Credit Rules, 2004 provided for the recovery of  interest  on  the  Cenvat  Credit  taken  or  utilised wrongly under the provisions of the said Rule read with  section  11AB  of  the  Central  Excise  Act,  1944. The issue also came up for consideration before the Hon’ble  Apex  Court  in  the  case  of  Union  of  India vs.  Ind  –  Swift  Laboratories  Ltd.  (2011)  265  ELT  3 (SC)  (2012)  25  STR  184  (SC).  The  question  before the  Honorable  Apex  Court  was  “when  interest  on irregular credit arises, is it from the date of availing of  such  credit  or  from  the  date  of  utilisation?”  The Hon’ble Apex Court held that Rule 14 of the Cenvat Credit  Rules,  2004  specifically  provides  for  interest on  the  Cenvat  Credit  taken  or  utilised  wrongly  or erroneously refunded. Therefore, interest on irregu- lar  credit  arises  from  the  date  of  taking  of  such credit.  Accordingly  it  was  held  that  if  the  Cenvat Credit  taken  is  irregularly,  though  not  utilised,  the liability  to  pay  interest  would  arise  from  the  date of  taking  of  the  credit  till  the  date  of  reversal  of the  credit.  In  view  of  the  above  decision  by  the Hon’ble Apex Court, the ratio of which is applicable to  the  present  case,  it  becomes  evident  that  the appellant  is  liable  to  discharge  interest  liability  on the  Cenvat  Credit  wrongly  taken  from  the  date  of taking  of  the  Cenvat credit  till  the  date  of  reversal. The  reliance  placed  by  the  appellant  on  the  deci- sion  of  the  Hon’ble  Karnataka  High  Court  in  the case  of  Bill  Forge  Pvt.  Ltd.  (supra)  and  the  other decisions  will  not  apply  to  the  facts  of  the  present case.  In  the  case  of  Bill  Forge  Pvt.  Ltd.  (supra)  the appellant  therein  took  the  credit  and  also  reversed the  credit  within  the  same  month,  i.e.,  before  any liability  to  pay  any  duty  arose.  It  was  in  that  con- text  the  Hon’ble  High  Court  held  that  if  a  credit has  been  taken  but  reversed  before  any  liability to  pay  duty  arose  then  no  interest  liability  would accrue.  Those  are  not  the  facts  obtaining  in  the present  case.  It  is  not  the  case  of  the  appellant that  between  the  date  of  taking  the  credit  and the date of reversal when the base oil was cleared, liability  to  pay  duty  did  not  arise  at  all.  In  fact  the clearance has been spread over several months and years.  Therefore,  the  facts  of  the  case  before  us are  clearly  distinguishable  from  the  facts  involved in  Bill  Forge  Pvt.  Ltd.  cited  (supra)  and  hence  ratio of  the  said  decision  would  not  apply.  Since  Pearl Insulation Ltd. (supra) and Gokaldas Images (P) Ltd. (supra)  also  follow  the  ratio  of  the  Bill  Forge  Pvt. Ltd  they  would  also  not  apply  to  the  facts  of  the present  case.  As  regards  the  reliance  placed  in  the case  of  Rana  Sugar  Ltd.  (supra),  it  is  true  that  the Hon’ble  Allahabad  High  Court  had  held  that  if  the reversal  of  credit  has  been  done  before  its  utilisa- tion, demand of interest would not arise. However, the said order was passed much before the decision in Ind-Swift Laboratories Ltd. (supra) by the Hon’ble Apex  Court  was  pronounced.  Therefore,  the  ratio of  Ind-Swift  Laboratories  Ltd.  would  prevail  over all  the  other  decisions  of  various  Courts.

Para  5

As regard the argument advanced by the appellant that  since  the  expression  “Cenvat  Credit  taken  or utilised  wrongly”  had  been  substituted  effective from  17-03-2012  WITH  the  words  “Cenvat  Credit taken  and  utilised  wrongly”,  the  same  would  have retrospective  effect  and,  therefore,  inasmuch  as the  appellant  has  not  utilised  the  credit  there  will not  be  any  liability  to  interest,  this  argument  is misplaced.  Rule  14  of  the  the  Cenvat  Credit  Rules, 2004 was amended by a Notification No. 18/2012-C.E. (N.T.),  dated  17-O3-2012  and  amendment  effected in  Rule  14  of  the  Cenvat  Credit  Rules,  2004  read follows:-

“In Rule 14 of the said Rules, with effect from the 17th  day  of  March,  2012,-

a) For the words “taken or utilised wrongly”, the words “taken and utilised wrongly” shall be substituted;

This  amendment  rule  makes  it  absolute  clear  that the  amendment  is  with  effect  from  17-O3-2012  (in- advertently  mentioned  as  17-03-2004  in  the  ruling) and  not  before.  In  view  of  the  express  provisions in  the  Amendment  Rules,  the  argument  of  the appellant  that  amendment  being  in  the  nature  of substitution would have retrospective effect cannot be  accepted.  It  is  a  trite  law  that  every  statutory provision  is  prospective  only  unless  it  is  explicitly provided  that  it  is  retrospective  in  nature  and  the legislature  provides  for  such  retrospective  operation. In the present case, no such retrospective view has  been  provided  by  the  legislature  in  respect  of Notification  18/2012  –C.E.  (N.T.),  dated  17-03-2012 and, therefore, the argument of the Counsel in this regard  and  the  decisions  relied  upon  in  support  of the  same  cannot  be  accepted.

It appears that, the factual position that appellants claimed credit to which they were not  entitled  at all, could have had a bearing on the conclusion arrived at by the Tribunal.

Conclusion

The Honorable Supreme Court in the Ind – Swift case has unsettled the judicially settled principle under the MODVAT (relevant for CENVAT Credit) that no interest is payable in cases where MODVAT Credit is wrongly taken but not utilised. Possibly, the specific circumstances of the case involving evasion of duty, had a bearing on the conclusion arrived at by the Apex Court.

It would appear that,  it  was  correctly  observed  by the Honorable Punjab & Haryana High Court in Ind – Swift case that, interest is compensatory in character and is imposed on nonpayment/delayed payable. No liability of payment of any excise duty arises when the CENVAT Credit is availed. The li- ability to pay duty arises only at the time of utilisa- tion. Even if the CENVAT Credit is wrongly taken, that does not lead to levy of interest as liability of payment of excise duty does not arise with such availment of the CENVAT Credit by an assessee. Availment and utilisation of credit cannot be placed at equal footing for the purpose of charging inter- est. Availment of credit is only a book entry and does not result in any gain for the tax payer. The  use of the credit results into benefit and  that  is the time which is relevant for charging interest.

With  due  respect,  the  judgment  of  the  Honorable Supreme  Court  in  the  Ind  –  Swift  case  which  has generated  extensive  judicial  controversy,  needs  a serious reconsideration more particularly to advance the  cause  of  the  CENVAT  Credit  Scheme  which  is essentially  a  beneficial  piece  of  legislation.  Pending judicial resolvement of the controversy, Government could  consider  a  clarificatory  amendment  to  the effect  that  the  amendment  in  Rule  14  of  CCR  vide Notification  No  18/  2012  –  CE  (NT)  dated  17-03-2012 would  have  retrospective  operation.

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