Rule 14 from the Cenvat Credit Rules reads as,
-In which the CENVAT credit continues to be taken or utilized wrongly or continues to be erroneously returned, exactly the same together with interest will be retrieved in the manufacturer or even the provider from the output service and also the provisions of sections 11A and 11AB from the Excise Act or sections 73 and 75 from the Finance Act, shall apply mutatis mutandis for effecting such recoveries.-
The problem was examined by CBEC, which stated in Circular No.897/17/2009 dated 03.09.2009, in which it stated,
-1. Representation continues to be caused by the area formation proclaiming that your decision of Hon’ble High Court of P&H within the situation of CCE, Delhi III V/s Maruti Udyog Ltd. 2007(214) ELT173(P&H)], has upheld an order of Tribunal in which it had been held that assessee isn’t prone to pay curiosity about the situation where credit was just taken and never utilized. The SLP from this order continues to be ignored through the Hon’ble Top Court. However, Rule 14 from the CENVAT Credit Rules, 2004, offers recovery of credit taken or utilized wrongly with interest. Cellular this conflict in legal provisions
and also the decision of Hon’ble Top Court, a clarification continues to be asked for in the Board.
2. The problem continues to be examined. It’s observed that the Tribunal decision and also the High Court judgement known to above, was shipped poor erstwhile Rule 57I from the Central Excise Rules, 1944 which the Top Court order under reference is just a decision and never a judgement. Since, the Rule 14 from the CENVAT Credit Rules, 2004, is obvious and unambiguous able that interest could be recoverable when CENVAT credit is taken or utilized wrongly, it’s clarified the interest will be recoverable when credit continues to be wrongly taken, even when it is not utilized, when it comes to the wordings from the present Rule 14.-
The circular is legally not sustainable.
The very first factor which is understood that Central Government isn’t titled to levy interest burden under Rule making energy. Further, no interest rates are being enforced under Rule 14, however it basically make Section 11AB relevant inside a particular circumstance. Interest rates are being enforced through Section 11AB only.
Whenever we read Section 11AA or 11AB, the main dependence on imposing any tax is -short payment/non payment of duty-. When cenvat credit was unlawfully taken and utilized, it may be contended that there is short/non payment of duty. However when unlawfully taken Cenvat wasn’t utilized, there’s no short payment or non payment of duty, and for that reason no interest could be required under Section 11AA or Section 11AB. Cellular this interest rates are not due when credit was just taken and never utilized.
It’s further to know that interest rates are never penal in character, it’s basically award for. If someone has had irregular credit, penalty could be enforced according to law- but that doesn’t mean he should pay interest also. Whenever a person utilizes the loan, he will get an advantage and the like benefit ought to be came back by means of interest. When such credit is required, government doesn’t get the tax it might have had wrongful credit wasn’t taken, and for that reason government ought to be paid out when it comes to interest. However, if credit was just drawn in books and never utilized, neither the assessee will get anything nor the federal government looses anything. Such situation there’s no doubt associated with a interest.
The problem continues to be examined in several cases particularly in Page clothing [2007 (208) ELT 108], Rajlakshmi [2008 (231) ELT 489], Maruti [2006 (196) ELT 173], Bidhata [2008 (12) STT 189], Midas care [2008 (226) ELT 412] and various other cases.
Regardless the circular released isn’t binding around the assessee. It’ll only increase some dispute and increase the harassment from the assessee, and can not do substantial harm. However the worst area of the circular may be the statement, -Top Court order under reference is just a decision and never a judgement-. Such statement continues to be released inside a circular (actually circular writing person doesn’t be aware of spelling of judgment), is aside from being grossly unconstitutional and outright breach of Article 141 from the Metabolic rate asia, it’s in bad taste. It shows the arrogance of tax administration.