Budget Blues
RECOVERY of CENVAT credit wrongly taken but not utilised: No interest? But penalty leviable?
RULE 14 of the CENVAT Credit Rules, before its amendment by Notification 6/2015- CE (NT) dated 01.03.2015, read as:
Recovery of CENVAT credit wrongly taken or erroneously refunded:- Where the CENVAT credit has been taken and 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 11AA of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
As you would remember, the and was or earlier. After the famous judgement of the Supreme Court in the case of Ind Swift Labs , wherein the Apex Court held that "interest is payable from the date of taking credit, not utilizing it", the benign Government amended or to and by Notification No. 18/2012 - CE (NT) dated 17.03.2012.
So from 17.03.2012, interest was applicable only on utilizing the wrong credit, not merely on taking it.
However there was a strange situation that interest was not payable, but the assessee was liable to penalty under Rule 15.
Rule 15 provides for penalty if any person, takes or utilises CENVAT credit…
Budget 2015 brings in some changes in Rule 14. The new Rule 14 stipulates:
(1) (i) Where the CENVAT credit has been taken wrongly but not utilised, the same shall be recovered from the manufacturer or the provider of output service, as the case may be, and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries;
(ii) Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same shall be recovered along with interest from the manufacturer or the provider of output service, as the case may be, and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis for effecting such recoveries.
So, now the provisions relating to wrong CENVAT credit ‘taken' and ‘taken and utilised' are separated.
1. Where CENVAT credit is taken, but not utilised, recovery shall be made and the provisions of Section 11A shall apply.
2. Where CENVAT credit is taken and utilised, recovery shall be made and the provisions of Sections11A and 11AA shall apply.
That is if the credit is taken and utilised, apart from the credit, interest under 11AA is payable. If the credit is taken but not utilised, provisions of Section 11AA are not specifically made applicable. But does this mean that there is no interest liability?
Section 11AA(1) states,
(1) Notwithstanding anything contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, the person, who is liable to pay duty, shall, in addition to the duty, be liable to pay interest at the rate specified in sub-section (2), whether such payment is made voluntarily or after determination of the amount of duty under section 11A .
So whatever you write wherever you want, if duty is payable, interest is mandatory. Are we back to square one?
PS: Even now, the penalty under Rule 15 is not deleted. So, if credit is taken and not utilised, and if it is recovered by the department under Rule 14, both interest and penalty are payable. Is this the law?