Interest, Not Chargeable if Credit has been taken but not Utilised and Subsequently Reversed: CESTAT [Read Order]

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT) has held that interest is not chargeable if credit has been taken but not utilised and subsequently reversed.

M/s. National Aluminium Company Limited, against the Order-in-Appeals passed by the Ld. Commissioner, Customs & Service Tax, Bhubaneswar (Appeals), whereby the levy of interest has been confirmed under Rule 14 of the Cenvat Credit Rules, 2004 (“CCR”) read with Section 11AB of the Central Excise Act, 1944 on the amount of Cenvat credit taken inadvertently but not utilized.

 The Appellant had inadvertently taken CENVAT Credit on duty-paid documents twice. On realising its mistake, the Appellant suomoto reversed such credit taken by it. The  Adjudicating authority observed that although the Appellant has reversed the excess credit taken, it had utilized the same and thus, failed to pay appropriate interest chargeable thereon. The said matters travelled up to the High Court, which set aside the orders vide its Order dated 30.11.2022 and restored the file before the Tribunal for a fresh hearing on merits.

It was submitted that Rule 14 of the CCR was amended vide Notification no. 18/2012 – CE (NT) dated 17.03.2012 and the entry was substituted to “taken and utilized wrongly”. The Appellant has asserted that it had a sufficient credit balance in its account and also produced relevant statements evidencing the same.

Section 11AB of the Central Excise Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person liable to pay the duty, shall in addition to the duty is liable to pay interest. The section does not stipulate interest is payable from the date of book entry, showing entitlement to Cenvat credit.

In the case of CCE Vs. Maruti Udyog Ltd., it was held that the assessee is not liable to pay interest as the credit was only taken as an entry in the Modvat record and was not utilized.

A single member bench Shri P K Choudhary, Member(Judicial)  observed that in light of the substitution of Rule 14 of the CENVAT Credit Rules, the intention of the legislature is not to impose interest where credit has only been taken but has not been utilized, is duly evident.

 The CESTAT viewed that since the Appellant had sufficient credit balances as noted above, there would be no loss of Revenue to the exchequer, therefore, the imposition of interest cannot sustain. While allowing the appeal, the bench set aside the impugned orders.

To Read the full text of the Order CLICK HERE

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