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Unused CENVAT Credit does not incur any interest liability
Date 24 Jun 2023
Written By
No Interest on Unutilized CENVAT Credit Due to Clerical Error, Clarifies Rule 14 Amendment
The CESTAT, Kolkata ruled that M/s. National Aluminium Company Limited was not liable to pay interest on unutilized CENVAT credit that was inadvertently taken and later reversed. The case involved a clerical error where credit was taken twice but not utilized. The court noted that the amendment in Rule 14 of the CENVAT Credit Rules, which changed from "taken or utilized" to "taken and utilized," indicated no interest liability for unutilized credit. The decision was supported by precedents from the Supreme Court and Karnataka High Court, emphasizing that unutilized credit does not incur interest. The impugned order demanding interest was set aside.

The CESTAT, Kolkata in M/S. NATIONAL ALUMINIUM COMPANY LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BHUBANESWAR-I - 2023 (6) TMI 368 - CESTAT KOLKATA held that the amendment in Rule 14 of the CENVAT Credit Rules, 2004 (“the CC Rules”) which previously read as 'taken or utilized' but was changed to 'taken and utilized', clearly indicated the intention of the legislature not to impose interest where the credit had been taken but not utilized.

Facts:

M/s. National Aluminium Company Limited (the Appellant”) had inadvertently taken CENVAT credit twice in the month of August, 2007 due to a clerical error and on realizing the mistake the Appellant suo-moto reversed such credit excess credit in the month of April, 2008.

The Adjudicating Authority observed that although the Appellant has reversed the excess credit taken, it had utilized the same thus, failed to pay appropriate interest chargeable thereon.

Consequently, a Show Cause Notice dated April 21, 2009 (“the SCN”) ordering Appellant to show how the Appellant was not liable to pay interest on excess utilised credit.

Thereafter, the Adjudicating Authority vide the Order-in-Original dated May 31, 2010 confirmed the demand of interest, aggrieved by which the Appellant filed an appeal before the Commissioner, Customs & Service tax, Bhubaneswar (Appeals) who vide Order-in-Appeal No.17/CE/BBSR-I/2011 dated February 18, 2011 ("the Impugned Order”) confirmed the demand of interest Under Rule 14 of the CC Rules read with Section 11AB of the Central Excise Act, 1944 ("the CE Act”) on the amount of Cenvat credit taken inadvertently but not utilized.

It is to be noted that, the matter has travelled up to the High Court. The High Court set aside the order of the lower authorities vide its Order dated November 30,2022 and restored the case before the Tribunal for fresh hearing on merits.

Before the CESTAT the Appellant contended that it had sufficient balance of CENVAT Credit in its books of accounts and had not utilized the credit taken inadvertently, further submitted that Rule 14 of the CC Rules was amended vide Notification No. 18/2012 – CE (NT) dated March 17, 2012 and the entry was substituted to “taken and utilized wrongly” and it is a settled position of law that substitution leads to replacement of the old provision by a new provision. Hence, no interest was payable where CENVAT credit has been merely taken but not utilized.

The Revenue Department (“the Respondent”) submitted that the Appellant is liable to pay interest on credit taken on an irregular basis, even though the same was not utilized by them in terms of Rule 14 of the CC Rules.

Issue:

Whether the Appellant was liable to pay interest on unutilized reversed CENVAT Credit?

Held:

The CESTAT, Kolkata in M/S. NATIONAL ALUMINIUM COMPANY LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BHUBANESWAR-I - 2023 (6) TMI 368 - CESTAT KOLKATA held as under:

(Author can be reached at info@a2ztaxcorp.com)

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