2023 (2) TMI 182 - AT - Service Tax

Recovery of irregular availment of CENVAT credit with interest liability of the said credit - Constitutional Validity of Rule 14 of the Cenvat Credit Rules 2004 in so far as it levies interest on Cenvat Credit of service tax taken - ultra vires Section 94 of the Finance Act, 1994 or not - time limitation for issuance of demand of interest - HELD THAT:- As applicable during the relevant period, Rule 14 of CCR provided for interest where CENVAT credit was availed or it was utilized. The Hon’ble Supreme Court has interpreted this clause in the case of Indswift Laboratories [[2011 (2) TMI 6 - SUPREME COURT]] in this manner and has clearly held that the High Court had attempted erroneously to read down the provisions by way of substituting the word ‘OR’ by “AND’ so as to give relief to the assessee. This decision was followed in various other judicial decisions.

The case of Billforge Pvt Ltd [[2011 (4) TMI 969 - KARNATAKA HIGH COURT]] was different inasmuch as it was an assertion of the learned counsel for the assesse in that case that it had neither availed not utillised CENVAT credit and therefore no interest was liable to be paid. It is in that factual matrix that Hon’ble High Court of Karnataka has held that no interest was liable to be paid and distinguished it from the judgement of IndSwift.

Recovery of Interest - no show-cause notice was issued to the appellant for recovery of interest - time limitation - HELD THAT:- If there is no specific provision under which a show-cause notice can be issued, any notice issued without the authority of law cannot be sustained. If we see the scheme Finance Act 1994 Section 75 provides for payment of interest automatically based on the amount of service tax due. Therefore there is no mechanism for separately deciding how much interest is due and adjudicating upon it. The only question is if interest is not paid and notice must be issued to the appellant, in some form asking it to pay the interest so that it can defend itself - the notice for demand of interest alone can be issued only after quantifying it. It is a different matter if the show-cause notice is issued for payment of service tax along with applicable interest. If a demand has to be issued only for amount of interest, it has to be quantified. And such quantification is possible only after the date of availment of CENVAT credit and the date of reversal are known. Therefore until 6.12.2011 when the appellant has reversed the CENVAT credit, no notice could have been issued demanding any amount as interest. Because it has to be counted from this date. A letter seeking payment of interest was issued within four months. Therefire, it cannot be said to be time barred.

The recovery of interest by the Revenue from the appellant is sustainable both on merits and on limitation - the impugned order upholding such proceedings are correct and proper and call for no interference - Appeal dismissed.