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J.K. Tyre & Industries Ltd. Versus Asst. Commr. of C. Ex., Mysore

2016 (340) E.L.T. 193 (Tri. - LB) - Imposition of interest u/r 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 and penalty u/r 15A of the Cenvat Credit Rules - wrongly availed Cenvat credit, reversed - scope of Rule 14 of the Cenvat Credit Rules, 2004 (Rules, 2004) - Held that: - The decision of the Honíble Karnataka High Court in Bill Forge Pvt. Ltd. [2011 (4)969 - KARNATAKA HIGH COURT] being the decision of the jurisdictional High Court and in the context .....

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Court, this would not result in eclipse of the precedential vitality of the jurisdictional High Courtís ruling, since while a High Court is at liberty to distinguish a persuasive decision of another High Court, the same would not amount to an overruling of the said decision nor operates to operate eclipse` the precedential value of the other High Courtís ratio insofar as it applies as an exposition of law within the territorial limits of that High Court. - The decision of the Karnataka High .....

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- G. Raghuram, President, Ms. Archana Wadhwa, Member (J) and Shri Ashok K. Arya, Member (T) Shri Dattatray D. Bhat, Advocate, for the Appellant. Shri N. Jagdish, Superintendent (AR), for the Respondent. ORDER [Order per : Archana Wadhwa, Member (J)]. - As per facts on record, the appellant is engaged in the manufacture of tyres, tubes and flats, falling under Chapter 40 of Central Excise Tariff Act, 1985. They were also availing the benefit of Cenvat credit of duty paid on inputs, capital goods .....

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use notice culminated into an order passed by the original adjudicating authority confirming the interest of ₹ 11,959/- in terms of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 and also imposed penalty of ₹ 2,000/- under Rule 15A of the Cenvat Credit Rules. The said order stands upheld by the Commissioner (Appeals). 3. Hence the present appeal. 4. Learned advocate Shri Dattatray D. Bhat relies upon the Hon ble Karnataka High Co .....

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hem. As such, he submits that inasmuch as the credit having been taken inadvertently stands reversed by them even before utilisation, no interest liability would arise inasmuch as there is no loss to the Revenue and the credit remained as a paper entry in their books of accounts. As regards penalty, he submits that it was an inadvertent mistake on the part of the clerk responsible for making entries in their Cenvat account and is not attributable to any mala fide, in which case, there is no just .....

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credit wrongly availed even though not utilised becomes recoverable along with interest. 6. Inasmuch as there are two contrary decisions of the High Courts, one by the Hon ble Karnataka High Court and the other by the High Court of Madras and inasmuch as the said issue keeps on repeatedly coming up before the Tribunal, I deem it fit to refer the matter to the Hon ble President for constitution of a Larger Bench on the following question of law :- When the wrongly availed credit is reversed .....

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of the same or not. 8. The referral order noticed a conflict between the ruling of the Hon ble High Court of Karnataka in C.C.E. & S.T., LTU, Bangalore v. Bill Forge Pvt. Ltd. - 2012 (279) E.L.T. 209 (Kar.) = 2012 (26) S.T.R. 204 (Kar.) and the Hon ble Madras High Court in C.C.E., Chennai-IV v. Sundaram Fasteners Ltd. - 2014 (304) E.L.T. 7 (Mad.). 9. We have heard learned counsel Shri Dattaraya D. Bhat for the appellant and learned Departmental Representatives Shri Ajay Saxena, Co .....

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20 to 22 : 20. From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the c .....

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fore utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non-taking of credit on the inputs. 21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to p .....

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rest would be payable from the date Cenvat credit is taken or utilized wrongly. 22. In the instant case, the facts are not in dispute. The assessee had availed wrongly the Cenvat credit on capital goods. Before the credit was taken or utilized, the mistake was brought to its notice. The assessee accepted the mistake and immediately reversed the entry. Thus the assessee did not take the benefit of the wrong entry in the account books. As he had taken credit in a sum of ₹ 11,691-00, a s .....

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oks of the assessee, it amounts to taking the benefit of Cenvat credit. Therefore interest is payable from that date, though, in fact by such entry the Revenue is not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the Cenvat credit or utilize the Cenvat credit. It is in those circumstances the Tribunal was justified in holding that when .....

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overnment would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under Section 11AB, in order to compensate the Government which was deprived of the duty on the date it became due. Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise. 12. Th .....

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llant, is engaged in the manufacture of tyres, tubes and flats under Chapter 40 of the Central Excise Tariff Act, 1985 and was availing Cenvat credit of duty-paid on inputs/capital goods and input services. During audit of its unit, appellant was found to have availed Cenvat credit twice, in respect of certain invoices. The appellant admitted this to be an error and immediately reversed the wrongly availed Cenvat credit, of ₹ 1,38,748/-. Proceedings were initiated by the show cause notice .....

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e impugned order. 14. The appellant is a company registered under Companies Act, 1956 in Mysore. Proceedings were initiated by the Assistant Commissioner of Central Excise, Mysore-II. The cause of action for initiation of proceedings and all the relevant facts and circumstances comprising the cause of action have arisen wholly within the territorial jurisdiction of the Hon ble High Court of Karnataka. 15. In view of conflicting interpretations put upon the scope and applicability of th .....

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Hon ble High Court would constitute a binding precedent, in circumstances where different High Courts record conflicting ratios on a relevant proposition of law. The Larger Bench resolved this issue as follows : 10. The question as to how the Tribunal should proceed in the face of conflicting decisions of High Courts has been considered in M/s. Atma Steels P. Ltd. and Others v. Collector of Central Excise, Chandigarh reported in 1984 (17) E.L.T. 331 wherein the Larger Bench consisting of fi .....

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pecified High Court or the original adjudicating authority was located there. The judgment of the Apex Court in the case of M/s. East India Commercial Co. Ltd. v. Collector of Customs, Calcutta reported in 1983 (13) E.L.T. 1342 (S.C.) was brought to the notice of the Larger Bench, but, was not adverted to sufficiently in the course of discussion. In the East India Commercial Co. case, one of the questions for consideration was whether the interpretation given by the Calcutta High Court to Sectio .....

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sion has been followed by the Bombay High Court in CIT v. Godavaridevi Saraf reported in 1978 (2) E.L.T. (J624). 10.1 In the case of U.P. Laminations v. Collector of Central Excise, Kanpur reported in 1988 (35) E.L.T. 398 (T), the Tribunal has followed the Supreme Court judgment in the case of East India Commercial Co. case and set aside the show cause notice issued against the appellants therein as it was in direct violation of the law laid down by the Allahabad High Court within whose jur .....

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f a decision by the jurisdictional High Court with regard to constitutionality of a provisions. The Tribunal has held that since the adjudication of vires of a provision of a statute or Notification is outside the jurisdiction of the Tribunal and the jurisdictional High Court i.e., the High Court having jurisdiction over the authority and the assessee, has not struck down the provision or Notification as ultra vires, the Tribunal has to follow the same and the assessee is entitled to take the st .....

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.e. where the jurisdictional High Court has taken a particular view on interpretation or proposition of law, that view has to be followed in cases within such jurisdiction. If the jurisdictional High Court has not expressed any view in regard to the subject matter and there is conflict of views among other High Courts, then the Tribunal will be free to formulate its own view in the light of Atma Steels P. Ltd. case; however, there is a decision of only one High Court in regard to disputed interp .....

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he Karnataka High Court s ruling in Bill Forge Pvt. Ltd. and observed that the said ruling does not commend its acceptance since, in their view, mere taking of Cenvat credit wrongly by making entries in the Cenvat register would equally invite liability to interest since that is the proper interpretation of the Supreme Court ruling in Ind-Swift Laboratories Ltd. (supra). Learned Departmental Representative has also contended that the Hon ble High Court of Bombay in Commissioner of Central Excise .....

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, it is also contended that the Single Member decision of the Tribunal in Dr. Reddy s Laboratories Ltd. v. Commr. of C. Ex. & S.T., Hyderabad - 2013 (293) E.L.T. 81 (Tri.-Bang.) concluded that the Hon ble Karnataka High Court s decision in Bill Forge Pvt. Ltd. is per incuriam, inter alia of Rule 3 of the Cenvat Credit Rules, 2004 and for the further reason that it does not correctly appreciate the ratio of the Apex Court s decision in Ind-swift Laboratories Ltd. A similar view, that the ruli .....

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the Apex Court in Ind-Swift Laboratories Ltd. in extenso. Provisions of Section 11AB as inserted by Act 33 of 1976 w.e.f. 28-9-1996 have also been extracted and analysed. The decision of the Apex Court in Pratibha Processors v. Union of India - 1996 (88) E.L.T. 12 (S.C.) elucidating principles underlying levy of tax, interest and penalty has been referred to. The position under the Modvat scheme and the principles thereof as expounded in the Apex Court s decision in Commissioner of Central Excis .....

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Apex Court and other relevant precedents, the jurisdictional High Court in Bill Forge Pvt. Ltd. set out clear reasons for its conclusion that there is no liability to interest on mere indication of entitlement to Cenvat credit and that the interest liability would arise only if Cenvat credit had been utilized, by payment of duty legally due to the Government. 19. In the aforesaid circumstances, it is impermissible to this Tribunal to hold that the judgment of the jurisdictional High Court .....

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on ble Karnataka High Court in Bill Forge Pvt. Ltd. is per incuriam, do not represent the correct and authorized application of the per incuriam principle. These decisions are accordingly overruled, to that extent. 20. The decision of the Larger Bench in Kashmir Conductors (supra) has been referred to and approved by the Hon ble Supreme Court in Collector of Central Excise v. Rallis India Ltd. - 2002 (142) E.L.T. 19 (S.C.). The decision of the Hon ble Karnataka High Court in Bill Forge Pvt. .....

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