Guest (Guest) 05 September 2009

Liability of interest where CENVAT credit was wrongly taken

Circular No. 897/17/2009-CX

F.No.267/83/2009-CX-8

Government of India

Ministry of Finance

Department of Revenue

(Central Board of Excise & Customs)

New Delhi, dated the 3rd September, 2009.

To,

All Director Generals,

All Chief Commissioners of Central Excise (including LTU),

All Commissioners of Central Excise (including LTU).

Sir/ Madam,

Subject: Liability of interest where CENVAT credit was wrongly taken but reversed by assessee

before utilization--reg.

Representation has been received from the field formation stating that the decision of Hon’ble

High Court of P&H in the case of CCE, Delhi III V/s Maruti Udyog Ltd. [2007(214)ELT173(P&H)],

has upheld the order of Tribunal wherein it was held that assessee is not liable to pay interest in the case

where credit was only taken and not utilized. The SLP against this order has been dismissed by the

Hon’ble Supreme Court. On the other hand, Rule 14 of The CENVAT Credit Rules, 2004, provides for

recovery of credit taken or utilized wrongly with interest. In view of this conflict in legal provisions

and the decision of Hon’ble Supreme Court, a clarification has been requested from the Board.

2. The matter has been examined. It is seen that the Tribunal decision and the High Court judgement

referred to above, was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1944

and that the Supreme Court order under reference is only a decision and not a judgement. Since, the

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 utilized wrongly, it is clarified that the interest

shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the

wordings of the present Rule 14.

3. Trade & Industry as well as field formations may be suitably informed.

4. Receipt of this circular may kindly be acknowledged.

5. Hindi version will follow.

Yours faithfully,

(Amish Kumar Gupta)

OSD (CX-8)

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Guest (Guest) 05 September 2009

The Finance Ministry has made it clear that interest liability will arise on companies in situations where Cenvat credit had been wrongly taken, but not utilised. A clarification circular to this effect was issued by the Central Board of Excise and Customs (CBEC) here on Thursday. This circular assumes importance in the wake of a conflict between the existing legal provision under the Cenvat Credit Rules 2004 and a Supreme Court decision. The Punjab and Haryana High Court had upheld an order of Tribunal that assessee (Maruti Udyog) was not liable to pay interest in the case where credit was only taken and not utilised. The special leave petition (SLP) against this order was dismissed by the Supreme Court. On the other hand, the Cenvat credit rules 2004 provides for recovery of credit taken or utilised wrongly with interest. A clarification was, therefore, sought by the field formations from the board of CBEC. The CBEC board has taken a stance that the Supreme Court order was only a decision and not a judgment. “Since Rule 14 ofCenvat credit rules is clear and unambiguous in the position that interest would be recoverable when Cenvat credit is taken or utilised wrongly, it is clarified that interest will 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,” the Revenue Department circular said.