Case Note & Summary
The appellant, Cipla Limited, a manufacturer of medicaments, was engaged in the manufacture of medicaments containing ethanol (alcohol) which fell outside the Central Excise Tariff. The appellant took cenvat credit on inputs used in the manufacture of such medicaments but later reversed the credit without utilizing it. The respondent, Commissioner of Central Excise, Goa, issued a demand for interest on the alleged inadmissible cenvat credit and imposed penalty under Rule 15 of the Cenvat Credit Rules, 2004. The Appellate Tribunal confirmed the demand of interest and penalty. The appellant filed an appeal before the High Court of Bombay at Goa. The High Court admitted the appeal on substantial questions of law, including whether interest can be demanded on cenvat credit that was reversed without utilization, whether the amendment to Rule 14 is prospective, and whether penalty under Rule 15 is sustainable. The Court held that interest under Rule 14 is attracted only when credit is utilized, and reversal without utilization does not amount to taking credit. The amendment to Rule 14 was held to be prospective. The Court also held that penalty under Rule 15 is not sustainable without mens rea. The appeal was allowed, setting aside the demand of interest and penalty.
Headnote
A) Central Excise - Cenvat Credit - Interest - Rule 14 of Cenvat Credit Rules, 2004 - The issue was whether interest can be demanded on cenvat credit that was taken but reversed without utilization. The Court held that interest under Rule 14 is attracted only when credit is utilized, and reversal without utilization does not amount to taking credit. (Paras 1-5) B) Central Excise - Cenvat Credit - Amendment - Rule 14 of Cenvat Credit Rules, 2004 - The amendment vide Notification No.18/2012-CE(NT) dated 17.03.2012 was held to be prospective in operation and cannot be applied retrospectively to demand interest for the period prior to the amendment. (Paras 1-5) C) Central Excise - Cenvat Credit - Penalty - Rule 15 of Cenvat Credit Rules, 2004 - The Court held that penalty under Rule 15 is not sustainable when the credit was reversed without utilization and there was no intention to evade duty. (Paras 1-5)
Issue of Consideration
Whether interest can be demanded on cenvat credit alleged to be incorrectly taken but admittedly not utilized, and whether penalty under Rule 15 is sustainable in such circumstances.
Final Decision
Appeal allowed. Demand of interest and penalty set aside.
Law Points
- Interest on cenvat credit not utilized cannot be demanded
- Reversal of credit without utilization does not amount to taking credit
- Amendment to Rule 14 is prospective
- Ind-Swift Laboratories distinguished
- Penalty under Rule 15 not sustainable without mens rea
