Wrong Input Claimed Reversed Through DRC03, Goods and Services Tax - GST

[SUDESHKUMAR AGARWAL]

Respected Sir/Madam

One of my client wrongly availed input of Cess in FY 2021-22. The mistake came in to knowledge while filing Annual Return. In the business of my client Cess is not chargeable as output tax hence not utilised ever and this wrong credit availed was paid through DRC-03 after filing Annual Return.

I want to know that can department demand any interest / penalty on this un-utilised input. The client is based in Delhi. Please also give case laws of Hon'ble High Courts and/or Hon'ble Supreme Court, if any.

Regards

CA Sudesh Kumar Agarwal

Posts / Replies

[KASTURI SETHI]

2022 (67) G.S.T.L. 524 (Mad.)

IN THE HIGH COURT OF JUDICATURE AT MADRAS

[MADURAI BENCH]

R. Suresh Kumar, J.

TVL. KUMARAN FILAMENTS (P) LTD.

Versus

COMMR. OF CGST & C. EX., MADURAI

W.P. (MD) No. 11113 of 2020 and W.M.P. (MD) No. 9729 of 2020, decided on 14-9-2021

GST : Entire amount of transitional credit being available in credit of assessee for whole period tax due or demand could be appropriated from credit of petitioner from electronic ledger; however, assessee was not liable to pay interest or penalty

Input Tax Credit - Transitional credit - Reversal of - Interest and penalty - Credit carried forward through Form GST TRAN-1 disallowed, successfully uploaded returns having been rejected by portal due to technical glitches - Entire amount available in credit of petitioner for the whole period and tax due or demand appropriated from credit of petitioner from electronic ledger - Petitioner-assessee not liable to pay interest or penalty - Section 73 of Finance Act, 1994 - Sections 50(3) and 122(2)(a) of Central Goods and Services Tax Act, 2017. [paras 23, 25, 26,29]

Petition partly allowed in favour of assessee

CASES CITED

Commissioner of Income Tax v. Anjum H. Ghaswada — 252 ITR 1 — Relied on.............. [Para 26]

Commissioner v. CESTAT— 2017 (346) E.L.T. 80 (Mad.) — Relied on.............................. [Para 26]

Maansarovar Motors Pvt. Ltd. v. Asstt. Commissioner — 2021 (44) G.S.T.L. 126 (Mad.) — Relied on            [Paras 14, 26, 27]

REPRESENTED BY :        Shri B. Rooban, for the Petitioner.

Smt. S. Ragaventhre, Standing Counsel, for the Respondent.

[Order]. - The prayer sought for herein is for a Writ of Certiorari, to call for the records pertaining to the impugned Order-in-Original No. GST/01/2020 passed by the third respondent in C. No. V/GST/15/31/2019-Adjn, dated 4-5-2020 and quash the same.

2. The petitioner concern is registered on the files of the third respondent holding GST No. 33AADCK6351N1ZB. The petitioner claimed that it had regularly filed the monthly returns under the Goods and Services Tax Act, [in short ‘GST Act’].

3. Since the GST regime got implemented from 1-7-2017, the petitioner got unavailed Cenvat credit of Rs. 50,21,080/- paid during the earlier regime through return in ER-1 for the first quarter of 2017, that is, for the months of April, 2017, May, 2017 and June, 2017. After the implementation of GST regime, the petitioner claimed the said unavailed Cenvat credit through TRAN-1, and the same has been carry forwarded to a new regime as Input Tax Credit.

4. While so, during the month of May, 2019, the second respondent has informed the petitioner that the return in ER-1, for the first quarter of 2017, that is, for the months of April, 2017, May, 2017 and June, 2017, has not been filed by the petitioner, and therefore, insisted the petitioner to immediately reverse the Cenvat credit of Rs. 50,21,080/-. Subsequently, or immediately, the petitioner submitted the said ER-1 for the months of April, May and June, 2017, and uploaded through online on ACES portal, for which acknowledgement with a caption ‘successful upload’ message was also received by the petitioner. However, the said uploaded returns were rejected by portal due to the technical glitches and even after repeated attempts with the helpdesk, the same could not be filed, therefore, the petitioner is eligible to carry forward the closing balance of Cenvat credit in TRAN-1 under Section 140 of the GST Act.

5. However, while doing the audit by the second respondent, it seems to have been objected that the successfully uploaded ER-1 returns for the months of April, May and June, 2017, could not be treated as filed and hence, insisted the petitioner to reverse carried forward Cenvat credit of Rs. 50,21,080/- and accordingly, the petitioner, having no other option, left with, to reverse the said Cenvat credit of Rs. 50,21,080/- in GSTR-3B filed for the month of May, 2019. The said transitional credit of Rs. 50,21,080/- was neither utilised nor refunded, but remained as excess credit till the date of reversal. In other words, the petitioner has never utilised the said Cenvat credit for discharging their output tax liability, but it simply remains as balance in the electronic credit ledger only.

6. While that being so, a show cause notice was issued by the respondent on 10-12-2019 to show cause, as to why the said transitional credit of Rs. 50,21,080/- should not be disallowed and adjusted towards the alleged demand, and why not interest under Section 50(3) shall be levied, and as to why not a penalty under Section 122(2)(a) of the CGST Act shall be levied.

7. The said show cause notice was issued under Section 73(1) of the CGST Act. Insofar as the said show cause notice, the petitioner has given his reply and objections on 4-2-2020. However, without considering or accepting the said reply given by the petitioner, the respondent proceeded to pass assessment order, dated 4-5-2020 whereby, the respondent has, in fact, disallowed the credit of Rs. 50,21,080/- carried forward through Form GST TRAN-1 by the petitioner, and demanded the same from them in terms of Section 73(1) of the Act r/w relevant Rules.

8. That apart, the respondents also, in the said order, appropriated the credit of Rs. 50,21,080/- and the same was reversed on 20-6-2019 for the demand. The respondent also demanded interest at appropriate rate for taking ineligible transitional credit in terms of Section 73(1) of the Act, determined under Section 50(3) of the CGST Act, 2017 and also imposed a penalty of Rs. 5,02,108/- being the 10% of the demand on them under Section 122(2)(a) of the CGST Act, for wrong availment of Input Tax Credit for any reason other than fraud or any wilful misstatement, etc.,

9. Felt aggrieved over the said order, the petitioner has moved this writ petition with the aforesaid prayer.

10. At the first instance, when this Court posed a question to the Learned Counsel for the petitioner, that as against the impugned order, why appeal has not been filed, and why the petitioner has chosen to approach this Court by invoking the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India, the reply was that insofar as the disallowance of the credit and demand of the tax is concerned, the petitioner has not agitated the issue, because the entire tax demand has been appropriated from the credit of the petitioner from the electronic ledger, however, he would submit that, when the entire demand of tax has been appropriated from the credit of the petitioner, the question of demanding any interest on the said payment of tax, and also imposing a penalty, as if that, the petitioner has wrongly availed the ITC, does not arise, therefore, such a mechanical order, since has been passed, according to the Learned Counsel for the petitioner, by the Revenue, it triggered the petitioner to invoke the extraordinary jurisdiction of this Court by filing the present writ petition, he contended.

11. On the merits of the case, Learned Counsel for the petitioner would contend that, insofar as the dis-allowing of the credit to the extent of Rs. 50,21,080/- is concerned, and a consequential appropriation of the said credit towards the demand made in this regard, is concerned, the petitioner has given up his challenge, therefore, those aspects need not be gone into.

12. However, insofar as the demand of interest is concerned, Learned Counsel would submit that, the demand of interest, on the alleged tax due is concerned, need not arise in this case, because, the entire tax due or demand, had been appropriated from the credit of the petitioner from the electronic ledger to the extent of Rs. 50,21,080/- as that amount have been made available in the credit of the petitioner for the whole period, that is, from first quarter of 2017, that is, well before the GST regime come into effect.

13. When that being so, whether the respondents’ demand interest is concerned, the Learned Counsel would contend that, this issue has been considered by this Court in a batch of writ petitions, and accordingly, it has been decided in favour of the taxpayer.

14. In this context, the Learned Counsel for the petitioner relied upon a decision of the writ Court in M/s. Maansarovar Motors Pvt. Ltd. v. Assistant Commissioner, Poonamalle Division, Chennai and Others, made in W.P. Nos. 28437 of 2019, etc., batch [2021 (44) G.S.T.L. 126 (Mad.)]. In the said judgment, the Learned Counsel for the petitioner has relied upon the following, which was held by the writ Court with regard to the demand of interest.

“23. Moreover, interest, as held by the Supreme Court in the case of Commissioner of Income Tax v. Anjum H. Ghaswada, (252 ITR 1), is indented to compensate the revenue for loss of capital. In the present case, there is no loss insofar as the revenue is in possession of the credit ‘which is good as cash' as held by the Supreme Court in the case of Eicher Motors (supra) and cannot thus be said to be prejudiced in any way.

24. Useful reference may also be made to a decision of a Division Bench of this Court in Commissioner of Central Excise, Puducherry-I v. W.P. Nos. 28437 of 2020 etc. batch CESTAT, Chennai - 2017 (346) E.L.T. 80. The Bench was answering a substantial question of law on the issue of whether interest may be demanded for differential duty not paid in time, since the assessee had sufficient credit in its current account during the relevant period. One of the reasons on which the revenues’ appeal was dismissed and the assessee’s contention that no demand for interest would arise in a case where sufficient credit is available to the assessee, is set out in para 6 of the short decision.

The Bench notes that there was sufficient credit available with the Department as on 30-6-2006 and the principal demand raised arose only from the adjustment of such credit. This adjustment could well have been automatic and the Bench thus says that no interest would lie on such adjustment which could have been made at any time, since the amount was available with the Department. In this context, the Bench quips that ‘when credit was available to the account of the assessee, the Department cannot act like Shylock demanding a pound of flesh’. Equally so in the present case.

25. The revenue places reliance on a decision of the Telangana High Court in Megha Engineering and Infrastructure Ltd. v. Commissioner of Central Taxes, Hyderabad. In W.P. No. 44517 of 2018, dated 18-4-2019. The aforesaid decision is dated 18-4-2019 long prior to the clarifications issued by the GST Council. I have also in my decision in the case of Refix Industry (supra) noted this position at para 16 thereof.”

15. Therefore, the Learned Counsel would contend that the issue has been concluded, that no such demand of interest could be made in the present case, in view of the factual position, where, the entire tax demand has been appropriated from the credit of the petitioner.

16. Insofar as the imposing of penalty under Section 122(2)(a) of the CGST Act, is concerned, Learned Counsel, by relying upon the said Section, has vehemently contended that, if at all, the petitioner has wrongly availed or utilised any ITC, then only, the petitioner is liable to be penalised by imposing a penalty under Section 122(2), here, in the case on hand, the petitioner has never availed or utilised the ITC, therefore, as per the language used under Section 122(2), such kind of penalty also cannot be imposed against the petitioner, therefore, that portion of the impugned order is also vitiated, hence, the Learned Counsel submits that, insofar as the demand of interest as well as the imposing of the penalty are concerned, the impugned order is liable to be interfered with, he contended.

17. Per contra, Mrs. S. Ragaventhre, Learned Standing Counsel appearing for the respondents, relying upon the averments made in the counter affidavit, would contend that, insofar as the demand of tax is concerned, since the challenge made against in the impugned order, has been given up by the petitioner, as per the submissions made by the Learned Counsel for the petitioner, though the Revenue has got a presentable case to sustain such demand, the respondent Counsel does not want to traverse the said issue.

18. However, insofar as the demand of interest is concerned, the Learned Standing Counsel would contend that, such a demand is possible and in fact inevitable, in view of Section 50(3) of the CGST Act, 2017, r/w 143 of CGST Rules, 2017 as well as Section 174 of the CGST Act, 2017.

19. By further elaborating her submission, Learned Standing Counsel for the respondents would also submit that, since the petitioner has intended to wrongly avail or utilise the ITC, and in this regard, the demandable tax, which was due long back since has not been paid, and it had been paid only by way of appropriation from the credit only through the impugned order, till such time since the tax has not been paid to the credit of the petitioner in the respondents’ account, certainly, that tax due shall carry the interest.

20. The Learned Standing Counsel would also submit that, insofar as the penalty is concerned, under Section 122(2), one of the circumstances mentioned therein is that, if any registered person, who supplies any goods or services or both, on which, any tax has not been paid, or where the Input Tax Credit has been wrongly availed or utilised, then for the said purpose, penalty is imposable to the extent of either 10,000/- rupees or 10% of the tax due, whichever is higher, therefore, in this context, the ITC since was wrongly availed or utilised or intended to be utilised or availed, certainly, the petitioner is liable to pay the penalty, and accordingly, the slapping of the penalty on the petitioner through the impugned order is also sustainable, she contended.

21. I have considered the said rival submissions made by the Learned Counsel appearing for the parties and have perused the materials placed before this Court.

22. In the operative portion of the impugned order, the following has been stated by the respondents.

“(i)    I disallow the credit of Rs. 50,21,080/- (Rupees Fifty Lakh Twenty One Thousand and Eighty Only) carried forward through form GST Tran-1 by M/s. Kumaran Filaments (P) Ltd., and demand the same from them in terms of Section 73(1) of CGST Act, 2017 read with Rules 121 and 142(1)(a) of CGST Rules, 2017 and Section 174 of the CGST Act, 2017.

(ii)    I appropriate the credit of Rs. 50,21,080/- (Rupees Fifty Lakh Twenty One Thousand and Eighty Only) reversed on 20-6-2019 for the demand under (I).

(iii)   I demand interest at the appropriate rate as applicable from them for taking ineligible Transitional credit in terms of Section 73(1) as determined under Section 50(3) of the CGST Act, 2017 read with Rule 142 of CGST Rules, 2017 and Section 174 of the CGST Act, 2017.

(iv)   I impose a penalty of Rs. 5,02,108/- (Rupees Five Lakhs Two Thousand and One Hundred and Eight Only) on them under Section 122(2)(a) of the CGST Act, 2017 for wrong availment of input tax credit for any reason other than fraud or any wilful misstatement or suppression of facts to evade payment of tax.”

23. Insofar as the first part of the order, which is disallowing the credit of Rs. 50,21,080/- carried forward through the Form GST TRAN-1 is concerned that has been disallowed and correspondingly, in the second portion, the entire amount has been appropriated from the credit of the petitioner, which was reversed on 20-6-2019.

24. Insofar as these two portions of the impugned order is concerned, since the petitioner has given up his challenge, we need not traverse on these issues. However, insofar as the third and fourth clause of the interim order, where, interest was demanded or penalty was imposed are concerned, since there has been a case and counter case projected by the Learned Counsel for the parties, those issues alone are dealt with.

25. Insofar as the due of interest is concerned, the factual matrix is that, the entire amount of Rs. 50,21,080/- was very much available in the credit of the petitioner for the whole period, therefore, if at all, the same is disallowed, and accordingly, it is appropriated through the impugned order, even before appropriation, since the amount has been in the credit of the petitioner, that is, in the electronic ledger from which, the amount now has been appropriated, it can be safely stated that the said amount, since have been in the credit of the petitioner for the entire period, it may not require any interest to be paid.

26. In order to fortify the said view, this Court wants to press into service the decision made by a Learned Judge of this Court in Maansarovar Motors Pvt. Ltd., case cited supra, dated 29-9-2020. The relevant portion of the order has already been quoted hereinabove, where, the Learned Judge, after taking aid from the judgment of the Hon’ble Supreme Court in Commissioner of Income Tax v. Anjum H. Ghaswada (252 ITR 1) and also a Division Bench of this Court in Commissioner of Central Excise, Puducherry-I v. CESTAT, Chennai, 2017 (346) E.L.T. 80 and also some other decisions, have held that, insofar as the appropriation of the tax demand from the credit is concerned, it cannot carry any interest, therefore, demanding any interest, in the words of the Division Bench is nothing but the Department act like shylock demanding a pound of flesh.

27. If we apply the said principle made in those cases, as has been quoted hereinabove, which is part of Maansarovar Motors Pvt. Ltd., case certainly, that would carry forward the plea of the petitioner as against the demand of interest in the impugned order. Insofar as the imposition of penalty is concerned, the relevant Section is 122(2). The language used in 122(2) reads as follows :

“(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised, -

(a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent of the tax due from such person, whichever is higher.”

28. In the present case, the reason for imposing penalty is that the petitioner has wrongly availed or utilised the Input Tax Credit.

29. However, the fact remains that, the petitioner has never utilised or availed the ITC wrongly. The entire amount has been in the credit till the impugned order is passed, that is the reason, why, the respondent Revenue was able to appropriate the amount from the credit, that is, the electronic credit ledger of the petitioner. Therefore, since at no point of time, the ITC was either availed or utilised by the petitioner, that is, one of the pre-requisite under which only penalty can be imposed under Section 122(2)(a), such situation, since is not available in the present case, I am of the considered view that, such kind of penalty cannot be imposed against the petitioner.

30. Therefore, insofar as the demand of interest as well as the imposition of penalty is concerned, which is form part of the impugned order under Clauses 3 and 4 of the operative portion, those demand made by the respondents or imposing penalty against the petitioner are untenable and therefore, that are liable to be interfered with.

31. In that view of the matter, this Court is inclined to dispose of this writ petition with the following order :

“that insofar as the impugned order is concerned, Clause 1 and 2 of the operative portion of the impugned order, with regard to the appropriation of the demanded tax to the extent of Rs. 50,21,080/- from the credit of the petitioner is concerned, it is to be sustained, therefore, it is upheld.

However, insofar as the third and fourth part of the operative portion of the impugned order, under which demand of interest, and imposition of penalty was made against the petitioner are concerned, those demand of interest as well as imposition of penalty are unjustifiable and unlawful, therefore, such part of the order impugned are hereby set aside.”

32. In the result, this writ petition is partly allowed as indicated above. However, there shall be no order as to costs. Consequently, connected miscellaneous petition is closed.

_______

[KASTURI SETHI]

2011 (265) E.L.T. 3 (S.C.)

IN THE SUPREME COURT OF INDIA

Dr. Mukundakam Sharma and Anil R. Dave, JJ.

UNION OF INDIA

Versus

IND-SWIFT LABORATORIES LTD.

Civil Appeal No. 1976 of 2011, decided on 21-2-2011

Interest - Cenvat/Modvat - Interest on irregular credit whether arises from date of availing such credit or date of utilization - 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 - High Court in impugned order proceeded by reading down Rule 14 ibid to mean that interest payable from date of utilization of irregular credit and credit availment by itself not creates liability to pay excise duty - High Court misread and misinterpreted Rule 14 ibid and wrongly read it down without properly appreciating scope and limitation thereof - Rule 14 ibid clear and unambiguous - 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 - High Court erroneously held that interest cannot be claimed from date of wrong availment - Attempt by High Court to read down provision by substituting “or” by “and” to give relief to assessee, erroneous - Impugned order set aside and Settlement Commission’s order restored - Rule 14 of Cenvat Credit Rules, 2004 - Section 11AB of Central Excise Act, 1944. [paras 2, 16, 17, 18, 20, 23]

Order - Finality of - Settlement Commission’s order - Admission on taking wrong Cenvat credit by respondent before Settlement Commission - Impugned High Court order passed on writ petition filed against rejection of application for clarification by Settlement Commission - Order on settlement not challenged and the same attained finality - Findings of fact recorded by Settlement Commission or questions of facts not open for examination by High Court or Supreme Court - Imposition of simple interest @ 10% per annum by Settlement Commission as per rules but High Court interpreted provisions wrongly and arrived at erroneous finding that interest payable from date of utilization of credit and not from date of availment - Interest on amount deposited being factual issue, High Court ought to have not exercised writ jurisdiction to substitute its own opinion when Settlement Commission’s opinion not challenged on merits - Impugned order set aside - Article 226 of Constitution of India - Rule 14 of Cenvat Credit Rules, 2004. [paras 13, 14, 21]

Order - Settlement Commission’s order - Judicial review, scope of - Order of Settlement Commission could be interfered with only if it is contrary to statutory provisions - Sections 32F(7) and 32M of Central Excise Act, 1944. [para 21]

Interpretation of statutes - Rule of reading down statutory provision - A statutory provision is generally read down in order to save such provision from being declared unconstitutional or illegal - Rule of reading down is in itself a rule of harmonious construction in a different name and generally used to straighten crudities or ironing out creases to make a statute workable -  Supreme Court precedent rulings holding that in the garb of reading down a provision, it is not open to read words and expressions not found in provision/statute and venture into judicial legislation - Rule of reading down to be used for limited purpose of making particular provision workable and to bring it in harmony with other provisions of statute. [paras 17, 18]

Appeal allowed

CASES CITED

B.R. Enterprises v. State of U.P. — (1999) 9 SCC 700 — Noted......................................... [Para 18]

Calcutta Gujarati Education Society v. Calcutta Municipal Corporation  — (2003) 10 SCC 533 — Noted    [Para 18]

Commissioner of Sales Tax v. Modi Sugar Mills Ltd. — (1961) 2 SCR 189  — Noted...... [Para 19]

REPRESENTED BY :        S/Shri Biswajeet Bhattacharya, ASG, Ms. Shipra Ghoseh, B. Krishna Prasad, Advocates, with him for the Appellant.

S/Shri Balbir Singh, Rupender Sinhmar, Abhishek Singh Beghel, Rajesh Kumar, Advocates, for the Respondent.

[Judgment per : Mukundakam Sharma, J.]. - Leave granted.

2. The present appeal is directed against the judgment and order dated 3-7-2009 in Civil Writ Petition No. 13860 of 2007 [2009 (240) E.L.T. 328 (P & H)] passed by the Punjab & Haryana High Court, whereby the High Court while interfering with the order of the Settlement Commission regarding payment of interest on the CENVAT credit, has held that the appellants herein have wrongly claimed interest on the CENVAT credit, from the date when such credit was wrongly availed instead of the date when such credit was actually utilized. The High Court has further held that the appellants are not entitled to claim interest on the amount of Rs. 50 lacs up to 31-1-2007 as the said amount already stood deposited on 8-3-2006.

3. The respondent herein, viz., M/s. Ind-Swift Laboratories Ltd., is a manufacturer of bulk drugs, falling under Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985. The company received inputs and capital goods from various manufacturers/dealers and availed CENVAT credit on the duty paid on such materials. On the basis of intelligence report, the factory premises of the respondent as also its group companies at different places were searched on 8-3-2006. Searches were also conducted at the offices of large number of firms in Ghaziabad and Noida which had allegedly issued invoices without any accompanying goods to the respondent and its group companies. At the same time the residential premises of Mr. R.P. Jain and Mr. J.P. Singh, the Brokers, were also searched and particularly during the course of search of the residence of Mr. R.P. Jain kachha ledgers/notebooks/files and cheques issued by the Swift group to the parties from whom invoices without material were being received, were recovered. It also appears that the appellant conducted investigations which indicated that the respondent had taken CENVAT credit on fake invoices. Consequently, a show cause notice dated 8-12-2006 was issued to the respondent, to which a reply was also submitted by the respondent. The respondent company also filed applications for settlement of the proceedings and consequently the entire matter was placed before the Settlement Commission.

4. Before the Settlement Commission, it was an admitted position that the case pertained to the period from 27-10-2001 to 31-3-2006. The respondent company also admitted all the allegations and duty liability as per the show cause notice dated 8-12-2006. The respondent also deposited the entire duty of Rs. 5,71,47,148/-. Since conditions/parameters for the admission of a case prescribed under Section 32E(1) of the Central Excise Act, 1944 [for short “the Act”] were fulfilled and complied with, the application of the respondent for settlement was entertained and the same was proceeded with in terms of Section 32F(1) of the Act. After considering the records and hearing the parties the Commission came to the findings that while the wrongful CENVAT credit was taken from the year 2001 to 31-3-2006, the payments refunds have been made on 22-2-2006 and on five different dates in March, 2006 and on 20-11-2006 and, therefore, the respondent had the benefit of availing the large amount of CENVAT credit to which they were not entitled. Considering the said fact, the Commission felt and was of the view that the appropriate interest liability has to be borne by the respondent on such wrongful availment of CENVAT credit. Accordingly, the applications of the respondent were settled under Section 32F(7) of the Act subject to the following terms and, conditions : -

“(a) The amount of duty relating to wrongful availment of CENVAT credit is settled at Rs. 5,71,47,148/-. As the entire amount has already been paid by the applicant, no further duty remains payable. The Bench directs that the said amount of deposit by the applicant shall be appropriated against the amount of duty settled in this Order. Besides the above, the inadmissible CENVAT credit of Rs. 78,97,255/-, as mentioned in para 23(a)(ii) of the show cause notice is disallowed.

(b) Immunity from interest in excess of 10% simple interest per annum is granted. Accordingly, the applicant shall pay simple interest @ 10% per annum on CENVAT credit wrongly availed (i.e. Rs. 5,71,47,148/-) from the dates the duty became payable as per Section 11AB of the Act, till the dates of payment. Revenue is directed to calculate the amount of interest as per this order and intimate the same to the applicant within 15 days of the receipt of this order. Thereafter, the applicant shall pay the amount of interest within 15 days of the receipt of the said intimation and report compliance both to the Bench and to Revenue.”

5. The said order also specifically recorded that full immunity be granted to the respondent from penalty and prosecution. Subsequent to the passing of the said order, the respondent herein filed a miscellaneous application seeking for clarification contending inter alia that the respondent had deposited whole amount of duty during investigation without protest and that, following the final order, the Revenue has calculated interest liability of the respondent at Rs. 1,47,90,065/- and that the Revenue has calculated the said interest up to the date of the appropriation of the deposited amount and not up to the date of payment. It was further contended that the interest has to be calculated from the date of actual utilization and not from the date of availment. Consequently, it was prayed in the said application that the Settlement Commission may clarify the actual amount of interest liability of the respondent and extend the period of payment of interest in the interest of justice and equity.

6. The said application was taken up for consideration and after hearing the parties the application was dismissed. While rejecting the said application the Bench noted that the final order sets out in very clear terms that the respondent shall pay simple interest @ 10 per cent per annum on CENVAT credit wrongfully availed from the date the duty became payable as per Section 11AB of the Act, till the date of payment and that the application is misconceived and that no case of any clarification is made out because interest has to be calculated till the date of the payment of the duty. It was also held that the interest is also payable with reference to the date of availment of CENVAT credit and not from the date of utilization of a part of the balance of such credit. The Commission held that such an issue was never raised before the Settlement Commission at any earlier stage. The Commission while rejecting the application held as  follows : -

“The said show cause notice vide Para 23 thereof proposes to demand the CENVAT credit availed fraudulently by the applicant and not the amount of CENVAT utilized by the applicant. As such, it naturally follows that the interest is also payable with reference to the date of availment of CENVAT credit and not from the date of utilization of a part of balance of such credit. In any case, this issue was not raised in the application of settlement or at the time of settlement. In a query from the Bench, ld. Advocate also not raising this issue during settlement proceedings. As such, the Bench finds no justification to go into the practice adopted by the Revenue in this regard. In any case, it is a new point that did not arise for decision in the Final Order and on which the applicant is not seeking a decision in the garb of seeking a clarification. The Commission has already decided the issues which were brought before it through the Settlement Application. Section 32M of the Central Excise Act, 1944 bars the Commission from re­opening its final order. Hence, the final order already passed in the matter was conclusive as to the matters stated therein and the same cannot be re-opened for the purpose of deciding the said point raised subsequently.”

7. The respondent, however, did not pay the entire amount in terms of the liability fixed. Consequently, a letter was issued on 16-8-2007 from the office of the appellant directing the appellant to pay the balance amount in terms of the order dated 19-1-2007.

8. The records disclose that immediately on receipt of the aforesaid letter the respondent filed a Writ Petition in the High Court of Punjab & Haryana which was registered as Civil Writ Petition No. 13860 of 2007, praying for quashing the order dated 31-5-2007 which was passed by the Settlement Commission on the applications seeking clarifications and the letter dated 16-8-2007 by which the office of the appellant requested the respondent to deposit the balance amount in terms of the order dated 19-1-2007.

9. The High Court issued notice and heard the parties on the said Writ Petition. By its judgment and order dated 3-7-2009 the said Writ Petition was allowed by the High Court holding that Rule 14 of the CENVAT Credit Rules, 2004 [for short “Credit Rules”] has to be read down to mean that where CENVAT credit has been taken and/or utilized wrongly, interest should be payable on the CENVAT credit from the date the said credit had been utilized wrongly and that 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. The High Court further held that on a conjoint reading of Section 11AB of the Tariff Act and that of Rules 3 & 4 of the Credit Rules, 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 was wrongfully utilized.

10. Being aggrieved by the aforesaid judgment and order passed by the High Court the present appeal was filed by the appellant, which was entertained and notice was issued to the respondent, on receipt of which, they have entered appearance. Counsel appearing for the parties were heard at length when the matter was listed for final arguments. By the present judgment and order we now proceed to dispose the said appeal by recording our reasons.

11. The facts delineated hereinabove make it crystal clear that the respondent accepted all the allegations raised in the show cause notice and also the duty liability under the said show cause notice dated 8-12-2006. They also deposited the entire duty of Rs. 5,71,47,148/- prior to the issuance of the show cause notice and, therefore, they requested for settlement of the proceedings in terms of Section 32E read with Section 32F of the Act. The said settlement proceedings were conducted in accordance with law and was finalized by the order dated 19-1-2007 on the terms and conditions which have already been extracted hereinbefore.

12. A bare perusal of the said order would indicate that the Settlement Commission has imposed the liability of payment of simple interest only @ 10 per cent per annum on CENVAT credit wrongly availed, that is Rs. 5,71,47,148/- from the date the duty became payable. Incidentally, imposition of such simple interest at 10 per cent per annum was the minimum, whereas levy of interest at 36 per cent per annum was the highest in terms of the Section 11AB of the Act. Besides, the allegations made in the show cause notice were admitted by the respondent which, therefore, establishes that the respondent had taken wrongful CENVAT credit from the year 2001 to 31-3-2006 and the payment has been made only on 22-2-2006 and on five different dates in March, 2006 and on 20-11-2006, which indicates that the respondent had the benefit of availing the large amount of CENVAT credit to which they were otherwise not entitled to.

13. The order of the Settlement Commission also indicates that full immunities were granted to the respondent from penalty and prosecution. The aforesaid order was not challenged by the respondent in any forum and, therefore, it became final and conclusive in terms of Section 32M of the Act, which states that every order of settlement passed under sub-section 7 of Section 32F would be conclusive as to the matters stated therein subject to the condition that when a settlement order is obtained by fraud or misrepresentation of fact, such an order would be void. According to the said provisions, no matter covered by such order could be reopened in any proceeding under the Central Excise Act or under any other law for the time being in force.

14. Although, subsequently, an application by way of clarification was filed by the respondent, the said application was, however, not entertained. It was held that the said application is misconceived, particularly, in view of the fact that no such issue was raised before the Commission. Since, however, a Writ Petition was filed by the respondent challenging only the second order of the Settlement Commission and the subsequent letter issued from the office of the appellant, on the basis of which, High Court even proceeded to interfere with the first order passed by the Settlement Commission, we heard the counsel appearing for the parties on the issue decided by the High Court also.

15. In order to appreciate the findings recorded by the High Court by way of reading down the provision of Rule 14, we deem it appropriate to extract the said Rule at this stage which is as follows :

“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.”

16. A bare reading of the said Rule would indicate that the manufacturer or the provider of the output service becomes liable to pay interest along with the duty where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded and that in the case of the aforesaid nature the provision of Section 11AB would apply for effecting such recovery.

17. We have very carefully read the impugned judgment and order of the High Court. The High Court proceeded by reading it down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court 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. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that 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 wrongly utilized. In our considered opinion, the High Court misread and misinterpreted 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 unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit 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. The issue is as to whether the aforesaid word “OR” appearing 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 expressions ‘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. We do not feel that any other harmonious construction is required to be given to the aforesaid expression/provision which is clear and unambiguous as it exists all by itself. So far as Section 11AB is concerned, the same becomes relevant and applicable 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 CENVAT credit and that it should only be payable from the date when CENVAT credit is wrongly utilized. Besides, the rule of reading down is in itself a rule of harmonious construction in a different name. It is generally utilized to straighten the crudities or ironing out the creases to make a statute 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. In this connection we may appropriately refer to the decision of this Court in Calcutta Gujarati Education Society and Another v. Calcutta Municipal Corporation and Others reported in (2003) 10 SCC 533 in which reference was made at Para 35 to the following observations of this Court in the case of B.R. Enterprises v. State of U.P. and Others reported in (1999) 9 SCC 700 : -

“81. ………. It is also well settled that first attempt should be made by the courts to uphold the charged provision and not to invalidate it merely because one of the possible interpretations leads to such a result, howsoever attractive it may be. Thus, where there are two possible interpretations, one invalidating the law and the other upholding, the latter should be adopted. For this, the courts have been endeavouring, sometimes to give restrictive or expansive meaning keeping in view the nature of legislation, maybe beneficial, penal or fiscal etc. Cumulatively it is to subserve the object of the legislation. Old golden rule is of respecting the wisdom of legislature that they are aware of the law and would never have intended for an invalid legislation. This also keeps courts within their track and checks individual zeal of going wayward. Yet in spite of this, if the impugned legislation cannot be saved the courts shall not hesitate to strike it down. Similarly, for upholding any provision, if it could be saved by reading it down, it should be done, unless plain words are so clear to be in defiance of the Constitution. These interpretations spring out because of concern of the courts to salvage a legislation to achieve its objective and not to let it fall merely because of a possible ingenious interpretation. The words are not static but dynamic. This infuses fertility in the field of interpretation. This equally helps to save an Act but also the cause of attack on the Act. Here the courts have to play a cautious role of weeding out the wild from the crop, of course, without infringing the Constitution. For doing this, the courts have taken help from the preamble, Objects, the scheme of the Act, its historical background, the purpose for enacting such a provision, the mischief, if any which existed, which is sought to be eliminated………………………. ..…….…………………………………………..This principle of reading down, however, will not be available where the plain and literal meaning from a bare reading of any impugned provisions clearly shows that it confers arbitrary, uncanalised or unbridled power.” (emphasis supplied)”

19. A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same we may refer to the decision of this Court in Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd. reported in (1961) 2 SCR 189 wherein this Court at Para 10 has observed as  follows : -

“10. ……. In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed : it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency.”

20. Therefore, the attempt of the High Court to read down the provision by way of substituting the word “OR” by an “AND” so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules.

21. An order passed by the Settlement Commission could be interfered with only if the said order is found to be contrary to any provisions of the Act. So far findings of the fact recorded by Commission or question of facts are concerned, the same is not open for examination either by the High Court or by the Supreme Court. In the present case the order of the Settlement Commission clearly indicates that the said order, particularly, with regard to the imposition of simple interest @ 10 per cent per annum was passed in accordance with the provisions of Rule 14 but the High Court wrongly interpreted the said Rule and thereby arrived at an erroneous finding.

22. So far as the second issue with respect to interest on Rs. 50 lacs is concerned, the same being a factual issue should not have been gone into by the High Court exercising the writ jurisdiction and the High Court should not have substituted its own opinion against the opinion of the Settlement Commission when the same was not challenged on merits.

23. In that view of the matter, we set aside the order passed by the  Punjab & Haryana High Court by the impugned judgment and order and restore the order of the Settlement Commission leaving the parties to bear their own costs.

 

_______