'Interest is recoverable if Cenvat credit is wrongly taken or utilised'

We had taken Cenvat Credit incorrectly but reversed our action before utilising the credit, but now the department says that we must pay interest from the date of taking Credit to the date of reversal. Are we required to pay interest?

The CBEC Circular no. 897/17/2009-CX dated 03.09.2009 says that since 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 utilised wrongly, the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilised, in terms of the wordings of the present Rule 14. However, in a recent decision in the case of Lakshmi Machine Works Ltd. [2011 (263) ELT 625 (Tri. Chennai)], the Tribunal, after taking cognisance of the above referred Circular, observed that merely by taking a wrong Credit inadvertently, the assessee has not availed any monetary benefit. In an analogous situation, if the assessee-manufacturer maintains a PLA account, the balance available in that account does not earn any interest for them. The Tribunal held that Cenvat Credit ‘taken or utilised’ must be read as ‘taken and utilised’ for the purpose of demand of interest. Therefore, the Tribunal held that no interest is payable.

We refer to the CBEC Circular no. 58/2004 dated 21.10.2004 regarding exemption from furnishing bank guarantee under duty exemption scheme and EPCG scheme. The Circular says that the dispensation will be available if the licence holder has not been penalised under the provisions of the Customs Act, 1962, the Central Excise Act, 1944, the Foreign Exchange Management Act (FEMA), 1999 or the Foreign Trade (Development and Regulation) Act, 1992 during the previous three financial years. We understand that there is a recent clarification in this regard. Can you give us the details?

As per CBEC Circular no. 6/2011 dated 18.11.2011, offences other than the following would not result in denial of the benefit of the said Circular no. 58/2004-Cus.

(a) Cases of duty evasion involving mis-declaration/ mis-statement/ collusion / wilful suppression / fraudulent intent whether or not the extended period for issue of a Show Cause Notice (SCN) has been invoked.

(b) Cases of mis-declaration and/ or clandestine/ unauthorised removal of excisable / import / export goods warranting confiscation of said goods.

(c) Cases of mis-declaration / mis-statement /collusion / willful suppression/ fraudulent intent aimed at availing Cenvat credit, rebate, refund, drawback, benefits under export promotion/ reward schemes.

(d) Cases wherein Customs/ Excise duties and Service Tax has been collected but not deposited with the exchequer.

(e) Cases of non-registration with the Department with intent to evade payment of duty/ tax.

The licence holder has to furnish an affidavit stating whether any case(s) involving mis-declaration, suppression, etc., have been booked against him during the previous three Financial years under the provisions of the Customs Act, 1962, Central Excise Act, 1944, the Foreign Exchange Management Act (FEMA), 1999, the Foreign Trade (Development and Regulation) Act, 1992 and the Service Tax (Finance Act, 1994).

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