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TAXAP/2157/2009 8/ 8 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 2157 of 2009
=========================================
COMMISSIONER
- CENTRAL EXCISE & CUSTOMS - Appellant(s)
Versus
SWEET
INDUSTRIES - Opponent(s)
=========================================
Appearance :
MS
NAYNABEN K GADHVI for
Appellant(s) : 1,
None for Opponent(s) :
1,
=========================================
CORAM
:
HONOURABLE
MS.JUSTICE HARSHA DEVANI
and
HONOURABLE
MR.JUSTICE H.B.ANTANI
Date
: 01/12/2010
ORAL
ORDER
(Per
: HONOURABLE MS.JUSTICE HARSHA DEVANI)
Leave
to add substantial questions of law as proposed vide the amendment.
In
this appeal under section 35G of the Central Excise Act, 1944 (the
Act), the Commissioner, Central Excise & Customs, Vapi has
challenged the order dated 13.8.2008 made by the Customs, Excise &
Service Tax Appellate Tribunal (the Tribunal), proposing the
following three questions :
“[1] Whether
or not the CESTAT is right in holding that M/s Sweet Industries,
Daman is not required to pay
any interest on Cenvat Credit availed on input/raw material
destroyed in the fire accident & on Cenvat Credit availed on
input/raw material contained in the semi-finished goods destroyed in
the fire accident?
[2] Whether
the Tribunal committed error in interpreting the provisions of
section 11AB of the Central Excise Act and by further holding that
section 11AB of the Act does not apply in case of delay in reversal
of wrongly availed Cenvat Credit?
[3] Whether
the Tribunal committed error in not appreciating aspect that Cenvat
Credit wrongly not reversed for long time is liable for interest?”
The
respondent-assessee is engaged in the manufacture of excisable
goods. On account of a fire accident that took place on 26.1.2004 at
the factory premises of the assessee, all the stock of finished
goods, semi-finished goods, raw material and capital goods/machinery
were destroyed. Subsequently, a show cause notice came to be issued
to the assessee proposing to recover Cenvat Credit of Rs.18,51,272/-
availed on machinery/capital goods destroyed in the fire accident
under Rule 12 of the Cenvat Credit Rules, 2002 (the Rules) read with
section 11A of the Act, along with interest under section 11AB of
the Act; demand of interest on delayed payment of duty on finished
goods/raw material/raw material contained in semi-finished goods
destroyed in the fire accident under
section 11AB of the Act; demand of interest of Rs.58,435/-
on delayed payment of Cenvat Credit amounting to Rs.6,38,393/- under
section 11AB of the Act in terms of Rule 12 of the Rules as well as
imposition of penalty under Rule 13(2) of the Rules read with
section 11AC of the Act.
The
show cause notice culminated into an order made by the adjudicating
authority whereby the adjudicating authority dropped the demand for
recovery of Cenvat Credit of Rs.18,51,272/-. However, he directed
recovery of interest at appropriate rate under section 11AB of the
Act on delayed payment of duty on finished goods, Cenvat Credit
availed on raw material destroyed in the fire accident and
semi-finished goods destroyed in the fire accident, and confirmed
the demand of interest of Rs.58,435/-.
The
assessee carried the matter in appeal before the Commissioner
(Appeals) who vide the order dated 28.9.2006, dismissed the appeal.
The Commissioner (Appeals) found that there was delay in payment of
duty on the part of the assessee. Accordingly, interest at
appropriate rate under section 11AB of the Act was recoverable from
it. Being aggrieved, the assessee took the matter in second appeal
before the Tribunal and succeeded.
Ms.
Naynaben Gadhvi, learned Standing Counsel for the appellant-revenue
submitted that though the assessee had reversed the Cenvat Credit
availed on raw
material as well as on raw material contained in semi-finished goods
which were destroyed in the fire accident, the payment of duty and
reversal of Cenvat Credit was not made in time as per the provisions
of the Act and the Rules made thereunder. In view of the delay, the
assessee was liable to pay interest on the delayed payment of duty
or delayed reversal of Cenvat Credit under section 11AB of the Act.
Attention was invited to the impugned order of the Tribunal to
submit that the Tribunal has held that section 11AB of the Act would
be applicable only in cases of non-levy or short levy of excise duty
or non-payment of duty by the due date as required under law and
that section 11AB of the Act would not be applicable in the facts of
the present case.
Inviting
attention to rule 12 of the Rules, it was submitted that the
Tribunal has lost sight of the said rule which provides that where
Cenvat Credit has been taken or utilized wrongly or has been
erroneously refunded, the same along with interest shall be
recovered from the manufacturer and the provisions of sections 11A
and 11AB of the Act shall apply mutatis
mutandis
for effecting such recoveries. It was submitted that the provisions
of section 11AB of the Act would, therefore, also be applicable in
case where the Cenvat Credit has been taken or utilized wrongly or
has been erroneously refunded and as such the view taken by the
Tribunal is erroneous and warrants interference.
As
can be seen from the impugned order of the Tribunal, before the
Tribunal, on behalf of the assessee, interest liability on finished
goods had been admitted. Insofar as the
interest on the Cenvat Credit of Rs.1,25,844/- reversed by the
assessee on inputs contained in semi-finished goods destroyed in
fire, it was submitted that in the light of the decision of the
Larger Bench of the Tribunal in the case of Grasim
Industries v. Commissioner of Central Excise & Customs, Indore,
the assessee was not even required to reverse the credit taken on
inputs contained in semi-finished goods destroyed in the fire since
the requirement of Cenvat Credit Rules that the inputs should have
been used in manufacture, had been fulfilled. It was submitted that,
therefore, the demand of interest would not arise. The Tribunal
after considering various submissions advanced on behalf of the
assessee, has held as follows :
“[4] After
considering the submissions of both the sides, I find considerable
force in the arguments advanced by the ld. Advocate on behalf of the
appellants. In view of the Larger Bench decision in the case of M/s
Grasim Industries cited above, there is no liability of interest on
Rs.1,25,844/- Cenvat Credit reversed by them since the inputs have
been issued for manufacture and were contained in semi-finished
goods and there is no dispute on this aspect. As regards interest
on Cenvat Credit of Rs.19,06,198/- on the inputs lying as such and
destroyed in fire accident, in view of the fact that section
11AB applied to only in cases or non-levy or short levy of excise
duty or non-payment of duty by the due date as required under law,
section 11AB is clearly not applicable. I also find that interest
is not demandable
under any of the provisions available and relevant to the facts of
the case. Therefore, the demand of interest on this amount also
cannot be upheld. Coming to the Cenvat Credit of Rs.6,38,393/-
taken on capital goods, in view of the fact that the credit was not
at all utilized as mentioned in the appeal memo submitted by the
appellants, and in view of the decisions of the Tribunal cited above
that interest is not payable if the credit has not been utilized,
the demand for interest on this amount also has to be set aside. I
am not going into the merits of other contentions since the benefit
of non-levy of interest on this ground alone is sufficient.”
Thus,
insofar as the demand confirmed by the adjudicating authority on the
interest on delayed payment of duty on finished goods is concerned,
the assessee had accepted the liability. As regards the interest of
Cenvat Credit reversed by the assessee on inputs which had been used
for manufacture and were contained in semi-finished goods, in the
light of the decision of the Larger Bench of the Tribunal in the
case of Grasim Industries (supra), the assessee was not even
required to reverse the credit taken on the inputs contained in
semi-finished goods destroyed in the fire. In the circumstances,
when the assessee was not even required
to reverse the credit taken on the inputs contained in the
semi-finished goods, the question of paying interest on late
reversal of credit taken would not arise.
Insofar
as the recovery of interest on the amount of Cenvat Credit of
Rs.19,06,198/- reversed by the assessee lying as such, the Tribunal
has held that the provisions of section 11AB of the Act would not be
applicable inasmuch as the said provision can be invoked only in
cases of non-levy or short-levy of excise duty or non-payment of
duty by due date as required under law. In this regard, it is
clarified that this Court does not agree with the reasoning adopted
by the Tribunal. The learned counsel for the revenue appears to be
justified in contending that while holding so, the Tribunal has
failed to consider the provisions of rule 12 of the Rules, which
lays down that the provisions of section 11A and 11AB of the Act
shall apply mutatis
mutandis
for effecting such recoveries where Cenvat Credit has been taken or
utilized wrongly or has been erroneously refunded. However, for the
reasons that follow, the Court is not inclined to interfere with the
impugned order of the Tribunal.
Rule
12 of the Rules provides that where Cenvat Credit has been taken or
utilized wrongly or has been erroneously refunded, the same along
with interest shall be recovered from the manufacturer and the
provisions of sections 11A and 11AB of the Act shall apply mutatis
mutandis
for effecting such recoveries.
In
the facts of the present case, the assessee had availed of Cenvat
Credit to the extent of 50% of the Cenvat Credit in respect of the
capital goods availed by it after the fire accident. Since, the
assessee was not entitled to avail
Cenvat Credit after the accident, it was held that the assessee was
liable to pay interest of Rs.58,435/- under rule 12 of the Rules
read with section 11B of the Act for taking undue and illegal
financial benefit in the form of wrong availment and wrong
utilization of the credit. In this regard, before the Tribunal, on
behalf of the assessee, it had been pointed out that though Cenvat
Credit of Rs.6,38,393/- had been availed by the assessee in April
2004, the credit taken was never utilized till the date of reversal
and as such, there was no liability to pay interest. The Tribunal
has held that in view of the fact that the credit was not at all
utilized, in the light of the earlier decisions of the Tribunal; the
assessee was not liable to pay interest if the credit had not been
utilized. The aforesaid view of the Tribunal is in line with the
view taken by the apex court in the case of Commissioner
of C.Ex., Mumbai-I v. Bombay Dyeing & Mfg. Co. Ltd.,
2007 (215) ELT 3 (S.C.) wherein the assessee therein had reversed
the entry before utilization, it was held that the same amounts to
not taking credit.
In
the circumstances, the assessee having reversed the credit taken by
it prior to utilization the same would amount to not taking credit
and as such the question of liability to pay any interest thereon
would not
arise. The Tribunal was, therefore, justified in holding that the
assessee was not liable to pay interest thereon.
In
the light of the aforesaid discussion, though the Court is not in
agreement with the reasoning adopted by the Tribunal as regards the
applicability of the provisions of section
11AB of the Act, for the reasons aforesaid, the Court does not find
any reason to interfere with the impugned order of the Tribunal. In
the circumstances, in the absence of any question of law, much less,
a substantial question of law, the appeal is dismissed.
[HARSHA
DEVANI, J.]
[H.B.ANTANI,
J.]
parmar*
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