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Circular on Liability of Interst on Cenvat Credit wrongly taken

Liability of interest where CENVAT credit was wrongly taken but reversed by assessee before utilization

 

Circular No. 897/17/2009-CX, dated 3-9-2009

 

 

Representation has been received from the field formation stating that the decision of Hon'ble High Court of P&H in the case of CCE, Delhi III V/s Maruti Udyog Ltd. [2007(214)ELT173(P&H)], has upheld the order of Tribunal wherein it was held that assessee is not liable to pay interest in the case where credit was only taken and not utilized. The SLP against this order has been dismissed by the Hon'ble Supreme Court. On the other hand, Rule 14 of The CENVAT Credit Rules, 2004, provides for recovery of credit taken or utilized wrongly with interest. In view of this conflict in legal provisions and the decision of Hon'ble Supreme Court, a clarification has been requested from the Board.

 

2. The matter has been examined. It is seen that the Tribunal decision and the High Court judgement referred to above, was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1944 and that the Supreme Court order under reference is only a decision and not a judgement. Since, the Rule 14 of the CENVAT Credit Rules, 2004, is clear and unambiguous in the position that interest would be recoverable when CENVAT credit is taken or utilized wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14.

 

3. Trade & Industry as well as field formations may be suitably informed.

 

4. Receipt of this circular may kindly be acknowledged.

 

Revenue clarifies that Interest liability is triggered if Cenvat credit is wrongly taken though not utilized

 The Central Board of Excise and Customs has issued Circular No. 897/17/2009-CX ('Board Circular') on September 3, 2009 clarifying that liability to interest would arise where CENVAT credit is wrongly taken but reversed by the taxpayer even before utilization.

 Background             

Rule 14 of the CENVAT Credit Rules, 2004 ('CENVAT Rules') provides for recovery of credit taken or utilized wrongly along with interest.

 

In the case of CCE vs Maruti Udyog Limited [2007 (214) ELT 173 (P&H)], the High Court had held that the taxpayer is not liable to pay interest where credit was taken but not utilized.  The Special Leave Petition ('SLP') against this order was dismissed by the Hon'ble Supreme Court.

The Clarification

The Board observed that the High Court decision in Maruti Udyog Limited was delivered in the context of erstwhile Rule 57-I of the Central Excise Rules, 1944 ('Erstwhile Rules') and that the dismissal of the SLP by the Supreme Court was not a judgment.

The Board clarified that interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of Rule 14 of the CENVAT Rules.

 BMR Comments and Analysis

Rule 14 of the CENVAT Rules and Rule 57-I of the Erstwhile Rules are pari materia to the extent that both the rules provide for recovery of credit wrongly taken.  Accordingly, the decision of the High Court in Maruti Udyog Limited should apply even in the context of Rule 14 of the CENVAT Rules.

 Further, in a recent decision the Punjab and Haryana High Court held [Ind-Swift Laboratories Limited vs UOI 2009 (240) ELT 328 (P&H)] that Rule 14 has to be read down to mean that interest would arise only if cenvat credit has been 'taken and utilized' wrongly, though the words used in the Rule are 'taken or utilised'.  The Court held that wrong taking of credit by itself does not create any liability for payment of excise duty and consequently interest cannot be levied. Thus the provisions of Section 11A and Section 11AB of the Central Excise Act, 1944 would not apply in such cases.  Similar views have been held by various Tribunals in the context of Rule 14 of the CENVAT Rules.

It is pertinent to note that the Supreme Court in the case of CCE vs Bombay Dyeing & Mfg Co Ltd 2007 (215) ELT 3 (SC) categorically held that if the credit entry has been reversed before utilization, it amounts to not taking credit.  The law declared by the Supreme Court is binding on all Courts and Revenue authorities.  Therefore, interest liability should not arise if the credit taken is reversed before utilization.

 

Though circulars are intended to clarify the legal position in case of doubts and to remove anomalies, this circular is likely to result in a spate of litigation on this issue.

                                                                                             Source: Tax Edge

Comments

  1. Rule 14 of the CENVAT Rules and Rule 57-I of the Erstwhile Rules are pari materia to the extent that both the rules provide for recovery of credit wrongly taken. Accordingly, the decision of the High Court in Maruti Udyog Limited should apply even in the context of Rule 14 of the CENVAT Rules.

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