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Interest — CENVAT credit wrongly availed — Entry reversed before its utilisation — It amounted to not taking credit — Department pleas that there was no discretion in authorities for consideration of factors that (i) wrongly taken credit was not utilised or was reversed voluntarily or (ii) there was no mala fide intent on part of assessee — Liability to pay interest was rejected.
Facts:
The respondent is engaged in manufacture of poly bags/flat films. During the course of audit, it was observed that the assessee wrongly availed CENVAT credit. The assessee reversed the said credit account and failed to pay the interest on the credit availed by it. A show-cause notice was issued for the recovery of interest. The adjudicating authority held the show-cause notice as dropped. The Department filed an appeal before the Commissioner (Appeals) who dismissed the appeal. The Department preferred second appeal before the Tribunal which also was dismissed. The adjudicating authority recorded that the assessee has not paid interest on the amount of CENVAT credit which was admittedly availed wrongly, but was subsequently reversed by it on being pointed out during the course of audit by the Departmental officer. It was urged that if the restrictive interpretation adopted by the adjudicating authority is accepted for non-chargeability of interest, then no recovery of interest on erroneous credit taken can be made.
Held:
In both situations i.e., where CENVAT credit has been wrongly taken or wrongly utilised, interest is recoverable. It was held that when the entry has been reversed before utilisation, the same amounts to not taking credit. Comment: The above judgment is in contradiction with a recent judgment of the Apex Court in the case of Ind-Swift laboratories. However, the ratio laid down by the above judgment of the Gujarat High Court is incorporated in law by amending the provisions in the CENVAT Credit Rules with effect from 1-4-2012.
