Reversal of wrongly taken CENVAT Credit – Is interest payable? – CBEC Clarifies
RULE 14 of the CENVAT Credit Rules, stipulates;
14. Recovery of CENVAT credit wrongly taken or erroneously refunded .- Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered xxxxxxx
Now, if you have by a genuine mistake taken the CENVAT Credit to which you were not entitled and you realise this later or the Department tells you that you are not eligible and as a law abiding taxpayer, you reverse the wrongly taken credit – your woes are not over! Normally Audit Groups make you do this reversal, but after they go, the Range Office will demand interest on the wrongly taken credit. You are aghast and tell them that though you have taken the Credit, you have not utilized it. But they will have none of it. They will tell you that the Rule reads – “credit has been taken or utilized”.
So if you merely take the Credit, you are liable to pay interest – whether you have utilized it or not is immaterial.
Now Board had been asked for a Clarification:
The decision of the High Court of P&H in the case of CCE , Delhi III V/s Maruti Udyog Ltd 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 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 the Supreme Court, a clarification has been requested from the Board.
The Board clarifies:-
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.
It is strange that the Board is taking such a technical stand. While the Board is referring to a 2006 judgement of the P&H High Court and claims it to be in the context of the now extinct Central Excise Rules, 1944.
But there is a recent judgement of the very same Punjab & Haryana High Court delivered in the context of Rule 12 of the CENVAT Credit Rules, 2001-02 and Rule 14 of CENVAT Credit Rules, 2004.
The High Court in its judgement delivered on July 3, 2009 in held
11. Reliance of respondents on Rule 14 of the Credit Rules that interest under Section 11AB of the Act is payable even if CENVAT credit has been taken. In our view, said clause has to be read down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable on the CENVAT credit taken and utilized wrongly. Interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty.
Is the Board not aware of this judgement or is it selective amnesia?
A similar view was taken by the CESTAT, Chennai Bench in 2009-TIOL-428-CESTAT-MAD wherein the Tribunal held,
The wordings of Rule 12 of the CENVAT Credit Rules “taken or utilised” may deserve to be interpreted only as “taken and utilised”.
But the Board is keen to collect interest without any legal base. Why do they want interest when Credit is not utilized?
Anyway the Board Circular is not binding on anybody. Judicial opinion is strongly against recovery of interest. This Board Circular appears to be contempt of the P&H High Court, to which of course the Board feigns ignorance.
Why can't the Board accept reality and reduce litigation. Now every assessee who had committed the ultimate sin of taking a wrong credit will have to go up to the Tribunal even if he has atoned the sin!
Should the Board generate litigation?
CBEC Circular No. 897/17/2009- CX : Dated 3rd September, 2009.