CENVAT Credit Wrongly taken - if not utilized, no Interest?
WE received this mail from a Netizen –
"The Apex Court in the case of Ind Swift Labs () held that “interest is payable from the date of taking credit, not utilizing it” . The Supreme Court ruled that “if the aforesaid provision [rule 14 of the CENVAT Credit Rules, 2004] 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."
The Central government was kind enough to amend Rule 14 of the CENVAT Credit Rules, 2004 by notification 18/2012-CE(N.T), dated 17th March, 2012 so as to substitute the word "OR" with "AND". In the result, from 17th March, 2012, interest is not payable u/s 11AA of the CEA, 1944 on CENVAT credit wrongly taken unless the same is utilized.
Now, coming to the question of “utilization” of credit wrongly taken, a few questions, (hypothetical as of today) –
+ Assume that CENVAT Credit of Rs. 2 lakhs has been taken on 17 th March, 2012 and a show-cause notice is issued in the month of November, 2012 inter alia seeking recovery of the CENVAT allegedly wrongly availed;
+ The demand notice is confirmed in March 2013 and penalty is imposed along with order for recovery of interest. The assessee pays up the confirmed amount and also penalty.
+ While calculating interest, he finds that –
Situation 1 - The CENVAT Credit of Rs. 2 lakhs wrongly availed has not been utilized at all inasmuch as all through the period beginning from the date of taking credit till reversal of the same the CENVAT balance was always in excess of Rs. 2 lakhs.
Situation 2 - the wrong CENVAT Credit availed has not been utilized fully all through the period from 17th March, 2012 to the date of payment of the confirmed dues meaning to say that only on certain days from the date of taking credit till the date of reversal the CENVAT credit balance fell below Rs. 2 lakhs.
+ In such a scenario, it is the submission of the assessee that –
a) as for the Situation 1 above, no interest is payable since it has not been utilized;
b) in respect of Situation 2, interest would be payable only for the period beginning from when the balance first fell below Rs. 2 lakhs. This is because the moment the balance fell below Rs. 2 lakhs, it means that the CENVAT Credit that is held to be wrongly taken has been utilized on the said date and this fact would continue irrespective of the fact that the balance subsequently got increased to beyond the Rs. 2 lakhs mark, on account of fresh credits that accrued later.
This interpretation is also on account of the reason that in terms of section 11AA of the CEA, 1944, which is to be applied mutatis mutandis , interest is to be calculated from the date on which such CENVAT credit is wrongly taken and utilized up to the date of actual payment of the amount due."
Will the Board clarify?