TMI Blog2015 (2) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 3 and 4 of the Cenvat Credit Rules we proceeded to hold that the interest would be payable from the date Cenvat credit is wrongly utilized. 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 circumstances such credit becomes recoverable along with interest. Where the entire duty had been paid along with interest before the issuance of show cause notice but still in the adjudication order no option was given by the Commissioner to pay 25 per cent. of the amount of duty demand confirmed towards penalty within 30 days in terms of proviso to Section 11AC, the benefit of lower penalty cannot be denied and that in such cases, the penalty imposable would be 25 per cent. of the duty demand. But in this case, the conditions set down in the case of K.P. Pouches [2008 (1) TMI 296 - DELHI HIGH COURT ] are not satisfied as the appellant have not paid the interest under Section 11AB on the wrongly taken CENVAT Credit, which as discussed above, is leviable. In view of this we hold that the benefit of lower penalty in terms of proviso to Section 11AC is not avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-01, 2001-02 and 2002-03, except for a few invoices for impregnated nylon fabrics, a dutiable final product, all other invoices were for clearance of grey cotton fabrics, an exempted final product. During 2000-01, the appellant issued three invoices showing clearances of 4500 metres of impregnated nylon fabrics to M/s. Shree Hanuman Textiles, Delhi on payment of duty which had been paid through the capital goods CENVAT Credit. During 2002-03, they issued an invoice to M/s. Shree Hanuman Textiles regarding clearance of 160 metres impregnated nylon fabrics on payment of duty which had been paid through CENVAT Credit. Here, it may be mentioned that in terms of the provisions of the CENVAT Credit Rules in force during the period of dispute, an assessee was not entitled for capital goods CENVAT Credit, if the capital goods at the time of receipt were being exclusively used in the manufacture of exempted final products. However, capital goods CENVAT Credit was available if the same were being used either for manufacture of dutiable final products or for manufacture of dutiable as well as exempted final products. Inquiry with M/s. Shree Hanuman Textile, Delhi revealed that they had purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l goods CENVAT Credit of ₹ 66,69,432/- during 2000-01 and 2001-02 along with interest thereon under Section 11AB and imposition of the penalty on the appellant under Rule 13(2) of CENVAT Credit Rules, 2001 and also for recovery of Central Excise duty amounting to ₹ 2,24,81,249/- in respect of clearances of grey cotton fabrics during 1-3-2002 to 31-3-2003 under proviso to Section 11A(1) of the Central Excise Act, 1944 along with interest on it under Section 11AB and imposition of penalty on the appellant company under Section 11AC of the Act and imposition of penalty under Rule 26 of the Central Excise Rules on Sh. Vinit Sethi, Director of the appellant company. 1.3 The above-mentioned show cause notices were adjudicated by the Commissioner by a common Order-in-Original Nos. 30-32/CE/2005, dated 30th November, 2005 by which - (a) CENVAT Credit demand of ₹ 66,69,432/- was confirmed against the appellant along with interest thereon under Section 11AB, (b) duty demand of ₹ 2,24,81,249/- was confirmed against the appellant company under proviso to Section 11A(1) of Central Excise Act, 1944 along with interest unit under Section 11AB, (c) total penalty of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been reversed before utilization, it would amount to not taking the credit; that this judgment of the Apex Court was not considered by the Apex Court in its judgment in the case of Union of India v. Ind-Swift Laboratories Ltd. reported in 2011 (265) E.L.T. 3 (S.C.) = 2012 (25) S.T.R. 184 (S.C.); that Hon ble Karnatka High Court in the case of CCE ST, Bangalore v. Bill Forge Pvt. Ltd. reported in 2012 (26) S.T.R. 204 (Kar) = 2012 (279) E.L.T. 209 (Kar.) relying upon the Apex Court s judgment in the case of CCE, Mumbai -I v. Bombay Dyeing and Manufacturing Company Ltd. 3 (S.C.) Supra has held that when wrongly taken CENVAT Credit is reversed before being utilized for payment of duty or for any other purpose, it would amount to not taking the credit and the provisions regarding interest would not be attracted; that the same view has been taken by Hon ble Karnataka High Court in its judgment in the case of CCE, Bangalore-II v. Pearl Insulation Ltd. reported in 2012 (281) E.L.T. 192 (Kar.) = 2012 (27) S.T.R. 337 (Kar.), that Hon ble Madras High Court in the case of CCE, Madurai v. Strategic Engineering (P) Ltd. reported in 2014 (310) E.L.T. 509 (Mad.) has taken the same view as H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 2009 (240) E.L.T. A41 (Supreme Court) and that in view of the above submissions, impugned order is not sustainable. 4. Sh. Pramod Kumar, the learned Joint CDR, defending the impugned order by reiterating the findings of the Commissioner, pleaded that during the period of dispute, appellants were manufacturing only grey cotton fabrics and they had no facility to manufacture impregnated nylon fabrics; that since the grey cotton fabrics were fully exempted from duty and the capital goods received by them were meant only for manufacture of grey fabrics, they were not entitled for capital goods CENVAT Credit in respect of the capital goods received by them during 2000-01; that in order to fraudulently avail CENVAT Credit in respect of the capital goods for which the appellant were not eligible in terms of the provisions of CENVAT Credit Rules, 2001/2002, as the capital goods were meant to be exclusively used in manufacture of exempted final products, they have shown some clearances of impregnated nylon fabrics - a dutiable product on payment of duty under 4 invoices, while inquiry with the customers revealed that goods sold under those invoices were only grey fabrics not impre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als Water (P) Ltd. v. Union of India reported in 2004 (174) E.L.T. 422 (All.) would not be applicable; that the Tribunal in the case of CCE, Pune-II v. KAY Bouvei Engineering Pvt. Ltd. reported in 2014 (301) E.L.T. 100 (Tri. Mumbai) has also held that provisions of Section 11A(2B) would not apply when the CENVAT Credit has been fraudulently taken in respect of the goods not received in the factory and by manipulating the gate register to show the receipt and in such situation, interest under Section 11AB and penalty under Section 11AC would also be attracted, even if the CENVAT Credit had been reversed immediately on being pointed out; that the same view has been taken by the Tribunal in the case of Balmer Lawrie Company Ltd. v. CCE, Belapur reported in 2014 (301) E.L.T. 573 (Tri.-Mumbai) wherein the Tribunal held that in the case of wrong taking of CENVAT Credit, the assessee would be liable to discharge interest liability from the date of taking inadmissible credit till its reversal, even if the wrongly taken CENVAT Credit had not been utilized; that same view has been taken by the Tribunal in the case of Bharat Heavy Electrical Limited v. CCE, Commissioner Central Excise, Hyde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be attracted; that in this regard, the Apex Court in the case of Bombay Dyeing and Manufacturing Company Limited (Supra) has clearly held that the credit which has been reversed before utilization would be treated as credit not taken; that the Apex Court in the case of Ind-Swift Laboratories (Supra) has not considered its earlier judgment in the case of CCE v. Bombay Dyeing and Manufacturing Company Limited; that in the case of Bill Forge Pvt. Ltd. (Supra) decided by Hon ble Karnataka High Court, capital goods CENVAT Credit had been taken in a fraudulent manner without receipt of the capital goods and except for utilization to the extent of about ₹ 11,000/-, the remaining credit was unutilized and was reversed on being pointed out and in this factual background, the Hon ble High Court held that interest and penalty would not be attracted; that even in a case of wrong taking of CENVAT Credit involving fraud, wilful misstatement, suppression of facts and contravention of the provisions of Central Excise Act, 1944 or of the rules made thereunder with intent to evade the payment of duty, the provisions of interest under Section 11AB and the provisions of penalty under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Hon ble Gujarat High Court judgment in the case of Commissioner of Central Excise Customs, Surat v. Rajeshri Dyeing and Printing Mills Pvt. Ltd reported in 2014 (305) E.L.T. 442 (Guj.). 7. We have considered the submissions from both the sides and perused the record. The appellants are manufacturer of grey cotton fabrics. There is no dispute that during the period of dispute, i.e., from 2000-01 and 2002-03, they were not manufacturing impregnated nylon fabrics and had no facility or capacity to manufacture the same. Appellant had received capital goods for manufacture of grey cotton fabrics during 2000-01 and they took the CENVAT Credit in two instalments during 2000-01 and 2001-02, as per the provisions of CENVAT Credit Rules. There is no dispute that during that even during 2002-03, they were manufacturing only grey cotton fabrics and during 2000-01 and 2001-02, the grey cotton fabrics were fully and unconditionally exempt from the Central Excise Duty. There is no dispute that in terms of the provisions of Rule 57AD(3) of Central Excise Rules, 1944 and Rule 6(4) of CENVAT Credit Rules, 2001, the appellant were not eligible for CENVAT Credit in respect of the capital good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. This is the second point of dispute. On this point, the department s stand is that reversal of the CENVAT Credit subsequent to the clearances would not make any difference and for the purpose of Notification No. 14/2002-C.E., the appellant would have to be treated as having availed capital goods CENVAT Credit and would not be eligible for the exemption. 8. Coming first question of duty exemption Notification No. 14/02-C.E. in respect of clearances of grey cotton fabrics during period from 1-3-2002 to 31-3-2003, the exemption by grey cotton fabrics during this period was available subject to the condition that no CENVAT Credit has been taken in respect of any inputs or capital goods. There is no dispute that the appellant had taken capital goods CENVAT Credit of ₹ 66,69,432/- during 2000-01 and 2001-02. Though the small amount of CENVAT Credit of ₹ 79,200/- was utilized on clearances of impregnated nylon fabrics which actually were the clearances of the exempted final products - grey cotton fabrics, the remaining credit was reversed in November, 2003. 8.1 The question as to whether exemption under a notification which is subject to non-availment of CENVAT Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed, has been decided by a five Members Bench of the Tribunal in the case of Franco Italian Company Pvt. v. CCE, 2000 (120) E.L.T. 792. The aforesaid five members Bench of the Tribunal after taking into account the ratio laid down by the Supreme Court in the case of Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur, 1996 (81) E.L.T. 3 has held as under : 6. Drawing similar analogy we consider that subject to the reversal of Modvat credit taken with regard to the inputs which were utilized in the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as full duty exemption under applicable small scale exemption notification with regard to some specified goods. Reference is answered accordingly. 7. As a result the impugned order-in-appeal dated 28-1-1999 passed by the Central Excise is set aside and the appeal of Franco Italian Company (supra) is allowed subject to the conditions that Modvat credit taken of the duty paid on the inputs which were utilized in the manufacture of duty free goods, is reversed. 18. In view of the above decision we are of the opinion that reversal of Modvat credit amounts to non-taking of credit on the inputs. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular has been issued nor the said circular of 1986 has been made applicable in the notification, which has been issued in 1994. 22. Hence in our opinion the Tribunal was not justified in taking a view that reversal of the credit having been made by the petitioner after removal of the final products the petitioner was not entitled to the benefit of Notification No. 15/94-C.E., dated 1-3-1994. 23. This view of the Tribunal is in our opinion patently erroneous and contrary to the decision of the five Member Larger Bench of the Tribunal as well as three member bench of the Tribunal, and is also contrary to the ratio of the decision of the Supreme Court in the case of Chandrapur Magnet Wire (supra). 24. In fact the decision of the five Member Larger Bench of the Tribunal in Franco Italian Company (supra) was followed by three Member Bench of the Appellate Tribunal in the case of ICON Pharma and Surgical (P) Ltd., 2000 (40) RLT 918. 25. The Tribunal again in a three Member Bench decision in the case of Tube Investment of India, Final Order No. 795/2002, wherein the specific issue was whether the reversal of credit subsequent to removal of goods, was fetal to the extension of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearance of the final product. 8.2 We find that the same view has been taken by Hon ble Gujarat High Court in the case of CCE v. Ashima Dyecot Limited reported in 2008 (232) E.L.T. 580 (Guj.). The Government filed a Special Leave Petition to the Apex Court against this judgment of Hon ble Gujarat High Court and the Apex Court vide judgment reported in 2009 (240) E.L.T. A41 (S.C.) after condoning the delay and admitting the SLP dismiss the same. 8.3 Since in the present case, there is no dispute that entire CENVAT Credit, though wrongly and fraudulently taken, has been reversed, following the above judgments of the High Courts, we hold that the appellant cannot be denied the benefit of exemption Notification No. 14/2002-C.E. during period from 1-3-2002 to 31-3-2003 as for the purpose of this exemption the appellant would have to be treated as not having availed any capital goods or inputs duty CENVAT Credit. 9. Coming to the next point of dispute as to whether the appellant would be liable to pay interest on the wrongly taken capital goods CENVAT Credit in terms of Rule 12 of CENVAT Credit Rules, 2001 read with Section 11AB of Central Excise Act, 1944, during 2000-01 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtly in cash and partly by reversing the CENVAT Credit. The assessee was issued the show cause notice dated 8-12-2006 for recovery of fraudulently taken CENVAT Credit of ₹ 5,71,47,148/- utilized by them for payment of duty. The show cause notice invoked the Rule 12 of the CENVAT Credit Rules, 2001/2002 and CENVAT Credit Rules, 2004 read with Section 11A(1) of Central Excise Act. The show cause notice also demanded interest under Section 11AB on the fraudulently availed credit. The assessee filed an application before the Settlement Commission under Section 32E(2) of the Central Excise Act for settlement of their matter. The Settlement Commission while settling this matter for amount of ₹ 5,71,47,148/- directed them to pay interest at the rate of 10 per cent. per annum on the wrongly availed CENVAT Credit of ₹ 5,71,47,148/- from the date the duty became payable as per Section 11AB of the Act till the dates of payment and the Revenue Department was directed to calculate the amount of interest payable in these terms and intimate to the assessee. The department calculated the interest liability as ₹ 1,47,90,065/- and in this calculation, the department calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty; that Section 11AB is attracted only in delayed payment of duty, where duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded and that this section does not stipulate interest from the date of book entry showing entitlement of CENVAT Credit. Accordingly, Hon ble High Court in this judgment held that interest would not be payable from the date of wrong taking of the CENVAT Credit but would be payable from the date on which such wrongly taken CENVAT Credit has been utilized for payment of duty, and the implication of this judgment would be that if wrongly taken CENVAT Credit has been reversed before being utilized, there would be no interest liability. Hon ble Madras High Court in the case of CCE v. Strategic Engineering P. Ltd. Supra has followed Hon ble Karnataka High Court s Judgment in the case of Bill Forge Pvt. Ltd. (Supra) and in this judgment also, Hon ble High Court has discussed the Apex Court judgment in the case of Ind-swift Laboratories Ltd (supra). 9.3 In our view, in the case of Ind-Swift Laboratories Limited, (supra) the question before the Apex Court was as to whether in case of wrong taking of the CENVAT Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made by the learned counsel for the assessee, as the decisions rendered in the aforesaid cases by the Allahabad High Court as well as the Karnataka High Court as well as the Hon ble Supreme Court, arose out of a case where the assessee claimed benefit of an exemption notification. The question which fell for consideration in those cases is as to whether reversal of credit after the removal of the final product would entitle the assessee therein to the benefits of exemption notification, which states that the reversal of the credit should be done before the removal of the products. In such circumstances, the courts considered the issue and said that for the purpose of extending the benefits of exemption notification, the time of reversal was not the material and reversal of the credit would amount to no credit being taken. In these decisions, Rule 14 or Section 11AB was not the subject matter for consideration. Therefore, these decisions relied upon by the learned counsel for the assessee are clearly distinguishable by facts, while read in the context of the facts and relevant notification which are applicable to the facts of the case. 11. The one and only decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with interest . 12. In the light of the above findings of the Hon ble Apex Court, particularly with regard to Rule 14, we do not find any justifiable ground to accept the plea of the assessee based on the decisions relied on by the assessee reported in 1996 (81) E.L.T. 3 (S.C.), 2004 (174) E.L.T. 422 (All.) and 2012 (279) E.L.T. 209 (Kar.). 10. Next comes the question as to whether the appellant would be liable for penalty under Rule 57AH(2) of Central Excise Rules, 1944/Rule 13(2) of CENVAT Credit Rules, 2001/2002. 10.1 Under Rule 57AH(2) of Central Excise Rules, 1944/Rule 13(2) of Cenvat Credit Rules, 2001/2002 when CENVAT Credit has been taken or utilized wrongly on the account of fraud, wilful misstatement, collusion, suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade the payment of duty, then the manufacturer shall be liable to pay penalty and the provisions of Section 11AC of the Act shall apply mutatis mutandis. Under Section 11AC wherever any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by the reason of fraud, collusion or wilful mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rever the short payment, non-payment or erroneous refund of duty is for the reasons as mentioned in this section and it is not material as to whether the duty short paid, not paid or erroneously refunded had been paid by the assessee to the Government before the issue of show cause notice. Applying the ratio of this judgment, the penalty under Rule 57AH(2) of Central Excise Rules, 1944/13(2) of CENVAT Credit Rules, 2001/2002 for either taking or utilizing of CENVAT Credit wrongly by taking recourse to fraud, wilful misstatement, suppression of facts, etc., on the part of the assessee penalty in terms of the provisions of Section 11AC would be attracted irrespective of the fact as to whether the wrongly taken CENVAT Credit had been utilized for payment of duty or not. Moreover, as held by the Apex Court in the case of Ind-Swift Laboratories Ltd. (Supra) word OR between the words taken and utilized wrongly cannot be substituted by AND . In this case, there is no dispute that capital goods CENVAT Credit of ₹ 66,69,432/- had been taken in a fraudulent manner inasmuch as while during the periods of 2000-2001 and 2001-2002 the appellants were manufacturing the only exempted fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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