Interest Liability When CENVAT Credit Wrongly Taken But Reversed Before Utilization – Board Clarifies
IN Circular No. 897/17/2009-CX dated 03.09.09, Board clarified:
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.
However, Board received references to re-examine the issue in light of judgement of P&H High Court in the case of Ind-Swift Labs. V/s UOI - 2009-TIOL-440-HC-P&H-CX. The said judgement of P&H High Court held that under provisions of Rule 14 of CENVAT Credit Rules, 2004, interest cannot be claimed from the date of wrong availment of credit. It is required to be paid from the date it is wrongly utlilized.
Now, Board has examined the matter and observes that the issue has been conclusively settled by the Apex Court in the departmental appeal against the above mentioned judgement of P&H High Court. The Apex Court vide its judgement dated 21.02.11 in Civil Appeal No. 1976 of 2011 - has set aside the aforesaid order of Hon'ble High Court. The Apex Court has ruled that “If the aforesaid provision is read as a whole we find 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 circumstances such credit becomes recoverable along with interest.”
Netizens may recall that we have covered this issue extensively in TIOL-DDT 1554 22.02.2011 while reporting the Apex Court judgment. Also refer to our detailed analysis of the Apex Court judgment in our story Irregular CENVAT Credit - Interest Payable from date of taking credit, not utilizing it: Supreme Court.
Now, this leads to an interesting situation. Let us assume one assessee had taken credit in April 2010 and reversed it in March 2011 without utilising it. He is liable to pay interest from April 2010. Let us take another assessee, who had also taken credit in April 2010 and utilised it February 2011. Is he liable to pay interest only from the date of utilisation? i.e., from February 2011? How can the person who did not utilise the credit end up paying more interest than the one who enjoyed the benefit of utilising the credit? Alternatively, if in both the cases, the interest is applicable only from April 2010, then why the word taken or UTILSIED was used in Rule 14?
Instead of celebrating over the judgment of SC, it would have been better had the responsive Board explained these finer points.
CBEC Circular No. 942/03/2011-CX, Dated: March 14, 2011