Irregular CENVAT Credit - Interest Payable from date of taking credit, not utilizing it - Supreme Court in Landmark Decision
PLEASE have a look at Rule 14 of the CENVAT Credit Rules,
"Rule 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 from the manufacturer or the provider of the output service and the provisions of Sections 11A and 11AB of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries."
Now the moot question is, “ What is the relevant date for payment of interest on the wrongly taken credit; is it the date of taking the credit or the date of utilizing it ?".
The Punjab and Haryana High Court in Ind - Swift Laboratories Ltd vs Union of India - , held , “ 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. On a conjoint reading of Section 11AB of the Act and that of Rules 3 and 4 of the Credit Rules, we hold that interest cannot be claimed from the date of wrong availment of CENVAT credit. The interest shall be payable from the date CENVAT credit is wrongly utilized."
We carried the above judgement on August 27, 2009 and in the last eighteen months several assessees have successfully made use of this order and many a tribunal bench respectfully followed the High Court order.
1. In , the Tribunal held, “the appellant is liable to pay interest on the amount, which has been utilized by him for discharge of duty liability as held by the Hon'ble High Court of Punjab & Haryana in the case of Ind -Swift Laboratories Ltd. Vs. UOI - ."
2. In , the Tribunal held, “ interest liability arises only from the date of wrong utilization of credit.."
3. In , the Tribunal held, “It can be seen from the above reproduced portion of the judgment of the Hon'ble High Court of Punjab & Haryana, that their lordships have settled a law as regards the provisions of Rule 14 of Cenvat Credit Rules, 2004. Revenue has not produced any contrary decision. ."
4. In , the Tribunal held, “In the light of the above ruling of the Hon'ble High Court, the Commissioner's order relating to interest on CENVAT credit has got to be set aside and it is ordered accordingly. ."
But this is history - Now the Supreme Court has set aside the famous and much cited order of the Punjab and Haryana High Court.
The Supreme Court observed, “Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole there is no reason to read the word "OR" in between the expressions 'taken' or 'utilized wrongly' or 'has been erroneously refunded' as the word "AND". On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest."
Now the law of the land is that even by mistake, if you take credit and never utilise it, you are liable to pay interest from the date of taking credit.
There is an interesting twist: In , the Tribunal had remanded the case to the Commissioner as the decision of the High Court was not available before the Commissioner. Now as per the Tribunal order, the Commissioner is required to pass the order based on the High Court order – which is now set aside.
We bring you this landmark judgement of the Supreme Court today. (Should we say delivered yesterday?)