CESTAT Overturns Penalty and Interest on Hindustan Zinc for Reversed CENVAT Credit

Reversal of CENVAT Credit Equals Non-Taking; Interest and Penalty Demands Quashed

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench in New Delhi, has set aside the order imposing interest and penalty on M/s. Hindustan Zinc Ltd. The Tribunal ruled that the reversal of CENVAT credit prior to the issuance of show cause notices amounts to non-taking of credit, thus nullifying the grounds for interest and penalty.

The appeals arose from an order passed by the Commissioner, Central Excise and Central Goods and Service Tax Commissionerate, Udaipur, which adjudicated seven show cause notices against Hindustan Zinc. The Commissioner had disallowed CENVAT credit availed by the company and confirmed the demand for interest and penalty under the CENVAT Credit Rules, 2004 and the Central Excise Act, 1944.

The Tribunal, presided over by Mr. Justice Dilip Gupta and Mr. S.V. Singh, emphasized that mere availment of credit does not automatically attract interest if the credit is reversed before the issuance of a show cause notice. Moreover, the Tribunal noted the absence of specific allegations regarding violations of Rule 6 of the 2004 Credit Rules in the show cause notices, rendering the interest demand unsustainable.

Furthermore, the Tribunal highlighted that penalty under Rule 15(1) of the CENVAT Credit Rules could not be imposed as the reversal of CENVAT credit is treated as non-taking of credit. The Bench reiterated that Rule 15(1) does not apply to cases involving suppression of facts or fraud.

The decision follows established precedents, including the Supreme Court's judgment in Chandrapur Magnet Wires (P) Ltd. v. Collector of C. Excise, Nagpur, which held that reversal of credit equates to non-availment. Consequently, the Tribunal found no justification for imposing penalties or demanding interest on the reversed credit.

This ruling underscores the importance of detailed and specific allegations in show cause notices and reinforces the principle that reversal of CENVAT credit shields taxpayers from punitive actions.

Bottom Line:

Reversal of CENVAT credit amounts to non-taking of credit. Interest under Section 11AA of the Central Excise Act cannot be imposed if reversal is made before the issuance of show cause notice. Penalty under Rule 15(1) of the CENVAT Credit Rules, 2004 cannot be imposed in cases of reversed CENVAT credit.

Statutory provision(s): Section 11AA of the Central Excise Act, 1944, Rule 14 and Rule 15(1) of the CENVAT Credit Rules, 2004

M/s. Hindustan Zinc Ltd. v. Commissioner, (CESTAT)(Principal Bench New Delhi) : Law Finder Doc Id # 2812720