[Order per : Archana Wadhwa, Member (J)]. - As per facts on record, the appellant is engaged in the manufacture of tyres, tubes and flats, falling under Chapter 40 of Central Excise Tariff Act, 1985. They were also availing the benefit of Cenvat credit of duty paid on inputs, capital goods as also input services. During the audit of their unit, it was found that they have availed Cenvat credit in respect of certain invoices twice, the appellant admitted that it was a mistake on their part and immediately reversed the wrongly availed Cenvat credit of Rs. 1,38,748/-.

2. On the above basis, proceedings were initiated against them by way of issuance of a show cause notice dated 17-12-2009 proposing to confirm the interest and imposition of penalty upon them. The said show cause notice culminated into an order passed by the original adjudicating authority confirming the interest of Rs. 11,959/- in terms of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 and also imposed penalty of Rs. 2,000/- under Rule 15A of the Cenvat Credit Rules. The said order stands upheld by the Commissioner (Appeals).

3. Hence the present appeal.

4. Learned advocate Shri Dattatray D. Bhat relies upon the Hon’ble Karnataka High Court’s decision in the case of CCE & ST, LTU, Bangalore v. Bill Forge Pvt. Ltd. [ (Kar.) = (Kar.)] wherein, after considering the Hon’ble Supreme Court’s decision in the case of UOI v. Ind-Swift Laboratories Ltd. [ (S.C.) = (S.C.)], the Hon’ble High Court held that if the wrongly availed credit does not stand utilised by the assessee and is reversed before utilisation, no interest liability would arise against them. As such, he submits that inasmuch as the credit having been taken inadvertently stands reversed by them even before utilisation, no interest liability would arise inasmuch as there is no loss to the Revenue and the credit remained as a paper entry in their books of accounts. As regards penalty, he submits that it was an inadvertent mistake on the part of the clerk responsible for making entries in their Cenvat account and is not attributable to any mala fide, in which case, there is no justification for imposition of penalty.

5. As against the decision of the Hon’ble Karnataka High Court, learned AR has brought to my notice a latest decision of the Hon’ble Madras High Court in the case of CCE, Chennai-IV v. Sundaram Fasteners Ltd. [ (Mad.)]. After taking note of the Hon’ble Supreme Court’s decision in the case of Ind-Swift Laboratories Ltd. and Hon’ble Karnataka High Court’s decision in the case of Bill Forge Pvt. Ltd., the Hon’ble High Court held that the credit wrongly availed even though not utilised becomes recoverable along with interest.

6. Inasmuch as there are two contrary decisions of the High Courts, one by the Hon’ble Karnataka High Court and the other by the High Court of Madras and inasmuch as the said issue keeps on repeatedly coming up before the Tribunal, I deem it fit to refer the matter to the Hon’ble President for constitution of a Larger Bench on the following question of law :-

When the wrongly availed credit is reversed before utilising the same, whether interest liability would arise in respect of the same or not.

(Order pronounced on 23-7-2015)

7. [Per : Justice G. Raghuram, President]. - Interim Order No. 168/2015, dated 23-7-2015 in Excise Appeal No. 493/2012-SM [ (Tri.-Bang.)] has referred for consideration of the Larger Bench, on the following question of law :

“When the wrongly availed credit is reversed before utilizing the same, whether interest liability would arise in respect of the same or not.”

8. The referral order noticed a conflict between the ruling of the Hon’ble High Court of Karnataka in C.C.E. & S.T., LTU, Bangalore v. Bill Forge Pvt. Ltd. - (Kar.) = (Kar.) and the Hon’ble Madras High Court in C.C.E., Chennai-IV v. Sundaram Fasteners Ltd. - (Mad.).

9. We have heard learned counsel Shri Dattaraya D. Bhat for the appellant and learned Departmental Representatives Shri Ajay Saxena, Commissioner and Shri N. Jagadish, Superintendent, for the respondent/Revenue.

10. The scope of Rule 14 of the Cenvat Credit Rules, 2004 (Rules, 2004) came to be considered by the Hon’ble Supreme Court in Union of India v. Ind-Swift Laboratories Ltd. - (S.C.) = (S.C.). This decision was considered in both the above decisions.

11. The relevant discussion and reasoning of the jurisdictional High Court in Bill Forge Pvt. Ltd. is set out in Paragraphs 20 to 22 :

20. From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the credit is taken, at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the Cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilise the credit to make payment of duty to discharge his liability. Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non-taking of credit on the inputs.

21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to pay interest. Section 11AB of the Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person liable to pay duty, shall in addition to the duty is liable to pay interest. Section do not stipulate interest is payable from the date of book entry, showing entitlement of Cenvat credit. Interest cannot be claimed from the date of wrong availment of Cenvat credit and that the interest would be payable from the date Cenvat credit is taken or utilized wrongly.

22. In the instant case, the facts are not in dispute. The assessee had availed wrongly the Cenvat credit on capital goods. Before the credit was taken or utilized, the mistake was brought to its notice. The assessee accepted the mistake and immediately reversed the entry. Thus the assessee did not take the benefit of the wrong entry in the account books. As he had taken credit in a sum of Rs. 11,691-00, a sum of Rs. 154-00 was the interest payable from the date the duty was payable, which they promptly paid. The claim of the Revenue was, though the assessee has not taken or utilized this Cenvat credit, because they admitted the mistake, the assessee is liable to pay interest from the date the entry was made in the register showing the availment of credit. According to the Revenue, once tax is paid on input or input service or service rendered and a corresponding entry is made in the account books of the assessee, it amounts to taking the benefit of Cenvat credit. Therefore interest is payable from that date, though, in fact by such entry the Revenue is not put to any loss at all. When once the wrong entry was pointed out, being convinced, the assessee has promptly reversed the entry. In other words, he did not take the advantage of wrong entry. He did not take the Cenvat credit or utilize the Cenvat credit. It is in those circumstances the Tribunal was justified in holding that when the assessee has not taken the benefit of the Cenvat credit, there is no liability to pay interest. Before it can be taken, it had been reversed. In other words, once the entry was reversed, it is as if that the Cenvat credit was not available. Therefore, the said judgment of the Apex Court has no application to the facts of this case. It is only when the assessee had taken the credit, in other words by taking such credit, if he had not paid the duty which is legally due to the Government, the Government would have sustained loss to that extent. Then the liability to pay interest from the date the amount became due arises under Section 11AB, in order to compensate the Government which was deprived of the duty on the date it became due. Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise.

12. The Hon’ble Madras High Court in Sundaram Fasteners Ltd. (supra) was however not persuaded to adopt the ruling in Bill Forge Pvt. Ltd. (supra) and observed that the Supreme Court’s decision in Ind-Swift Laboratories Ltd. (supra) requires that credit becomes recoverable along with interest, either on the taking of credit, utilizing it wrongly or erroneously refunding the credit.

13. Now to the relevant facts of the appeal in which the present order of reference has been made. The assessee/appellant, is engaged in the manufacture of tyres, tubes and flats under Chapter 40 of the Central Excise Tariff Act, 1985 and was availing Cenvat credit of duty-paid on inputs/capital goods and input services. During audit of its unit, appellant was found to have availed Cenvat credit twice, in respect of certain invoices. The appellant admitted this to be an error and immediately reversed the wrongly availed Cenvat credit, of Rs. 1,38,748/-. Proceedings were initiated by the show cause notice dated 17-12-2009 proposing levy of interest and penalty for wrongful availment of Cenvat credit. The proceedings culminated in an order passed by the primary adjudicating authority confirming interest of Rs. 11,959/- under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944 apart from penalty of Rs. 2,000/- under Rule 15A of the Cenvat Credit Rules. The Commissioner (A) rejected assessee’s appeal and upheld the primary adjudication order, by the impugned order.

14. The appellant is a company registered under Companies Act, 1956 in Mysore. Proceedings were initiated by the Assistant Commissioner of Central Excise, Mysore-II. The cause of action for initiation of proceedings and all the relevant facts and circumstances comprising the cause of action have arisen wholly within the territorial jurisdiction of the Hon’ble High Court of Karnataka.

15. In view of conflicting interpretations put upon the scope and applicability of the Hon’ble Supreme Court’s decision in Ind-Swift Laboratories Ltd., by the High Court of Karnataka in Bill Forge Pvt. Ltd. and the High Court of Madras in Sundaram Fasteners Ltd., the question that arises for our consideration is as to which decision will apply to govern the case of the appellant.

16. A Larger (5 Members) Bench of CESTAT in Collector of Central Excise, Chandigarh v. Kashmir Conductors - (Tribunal) considered the very question viz., the decision of which Hon’ble High Court would constitute a binding precedent, in circumstances where different High Courts record conflicting ratios on a relevant proposition of law. The Larger Bench resolved this issue as follows :

10. The question as to how the Tribunal should proceed in the face of conflicting decisions of High Courts has been considered in M/s. Atma Steels P. Ltd. and Others v. Collector of Central Excise, Chandigarh reported in wherein the Larger Bench consisting of five Members held that, in view of its All India jurisdiction and peculiar features, the Tribunal cannot be held bound to the view of any one of the High Courts, but has the judicial freedom, to consider the conflicting views, reflected by different High Courts, and adopt the one considered more appropriate to the facts of a given case before the Tribunal. The Tribunal also indicated that this should be so, irrespective of the fact whether one particular assessee was within the jurisdiction of a specified High Court or the original adjudicating authority was located there. The judgment of the Apex Court in the case of M/s. East India Commercial Co. Ltd. v. Collector of Customs, Calcutta reported in (S.C.) was brought to the notice of the Larger Bench, but, was not adverted to sufficiently in the course of discussion. In the East India Commercial Co. case, one of the questions for consideration was whether the interpretation given by the Calcutta High Court to Section 167 of the Sea Customs Act, 1878 would be binding on authorities functioning within the jurisdiction of the High Court and the Supreme Court held that “it is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. ........ We, therefore, hold that the law declared by the highest Court in the State is binding on authorities or Tribunals under its superintendence…….”. This decision has been followed by the Bombay High Court in CIT v. Godavaridevi Saraf reported in 1978 (2) E.L.T. (J624).

10.1 In the case of U.P. Laminations v. Collector of Central Excise, Kanpur reported in (T), the Tribunal has followed the Supreme Court judgment in the case of East India Commercial Co. case and set aside the show cause notice issued against the appellants therein as it was in direct violation of the law laid down by the Allahabad High Court within whose jurisdiction both the manufacturer and the Collector of Central Excise were situated.

10.2 In a recent decision of the Tribunal in the case of Madura Coats v. CCE, Bangalore reported in , it has been held that the decision of a particular High Court should certainly be followed by all authorities within the territorial jurisdiction of that High Court and that the authorities in another State are not bound to follow the views taken by a particular High Court in the absence of a decision by the jurisdictional High Court with regard to constitutionality of a provisions. The Tribunal has held that since the adjudication of vires of a provision of a statute or Notification is outside the jurisdiction of the Tribunal and the jurisdictional High Court i.e., the High Court having jurisdiction over the authority and the assessee, has not struck down the provision or Notification as ultra vires, the Tribunal has to follow the same and the assessee is entitled to take the stand that he is entitled to the benefit of the particular provision or Notification since the jurisdictional High Court has not struck it down, even though some other High Court may have done so. In case the conflict of decisions among High Courts does not relate to vires of any provision or Notification, it has been held that the Tribunal has to proceed in accordance with the decision in Atma Steels P. Ltd. in the light of the decision of Supreme Court in the East India Commercial Company case i.e. where the jurisdictional High Court has taken a particular view on interpretation or proposition of law, that view has to be followed in cases within such jurisdiction. If the jurisdictional High Court has not expressed any view in regard to the subject matter and there is conflict of views among other High Courts, then the Tribunal will be free to formulate its own view in the light of Atma Steels P. Ltd. case; however, there is a decision of only one High Court in regard to disputed interpretation or proposition of law, the Tribunal is bound to follow that order since it is not at liberty to disregard the solitary High Court decision.

17. Learned Departmental Representative Shri Ajay Saxena, has brought to our notice that the Hon’ble High Court of Chhattisgarh in Commissioner of Central Excise v. Shanti Processors Ltd. - (Guj.) and in Commissioner of Central Excise, Raipur v. Vandana Vidyut Ltd. - (Chhattisgarh) had distinguished the Karnataka High Court’s ruling in Bill Forge Pvt. Ltd. and observed that the said ruling does not commend its acceptance since, in their view, mere taking of Cenvat credit wrongly by making entries in the Cenvat register would equally invite liability to interest since that is the proper interpretation of the Supreme Court ruling in Ind-Swift Laboratories Ltd. (supra). Learned Departmental Representative has also contended that the Hon’ble High Court of Bombay in Commissioner of Central Excise, Pune-I v. GL & V India Pvt. Ltd. - (Bom.) had considered the Supreme Court’s decision in Ind-Swift Laboratories Ltd. (supra), the Karnataka High Court ruling in Bill Forge Pvt. Ltd. (supra) and the decision of the Madras High Court in Commissioner of Central Excise, Madurai v. Strategic Engineering (P) Ltd. - (Mad.) and held that the liability to interest would arise either on the taking or utilization of credit, irregularly. On behalf of Revenue, it is also contended that the Single Member decision of the Tribunal in Dr. Reddy’s Laboratories Ltd. v. Commr. of C. Ex. & S.T., Hyderabad - (Tri.-Bang.) concluded that the Hon’ble Karnataka High Court’s decision in Bill Forge Pvt. Ltd. is per incuriam, inter alia of Rule 3 of the Cenvat Credit Rules, 2004 and for the further reason that it does not correctly appreciate the ratio of the Apex Court’s decision in Ind-swift Laboratories Ltd. A similar view, that the ruling in Bill Forge Pvt. Ltd. is per incuriam is also expressed by a Division Bench of the Tribunal in Bharat Heavy Electricals Ltd. v. Commr. of Cus. & C. Ex., Hyderabad-I - (Tri.-Bang.). This decision refers to and follows the decision of the Hon’ble Single Member in Dr. Reddy’s Laboratories Ltd. (supra).

18. It requires to be noticed that the decision of the jurisdictional High Court, the Karnataka High Court, in Bill Forge Pvt. Ltd. has considered the decision of the Apex Court in Ind-Swift Laboratories Ltd. in extenso. Provisions of Section 11AB as inserted by Act 33 of 1976 w.e.f. 28-9-1996 have also been extracted and analysed. The decision of the Apex Court in Pratibha Processors v. Union of India - (S.C.) elucidating principles underlying levy of tax, interest and penalty has been referred to. The position under the Modvat scheme and the principles thereof as expounded in the Apex Court’s decision in Commissioner of Central Excise, Pune v. Dai Ichi Karkaria Ltd. - (S.C.) and in Commissioner of Central Excise, Mumbai-I v. Bombay Dyeing & Mfg. Co. Ltd. - (S.C.) and of the Gujarat High Court in Commissioner of Central Excise v. Ashima Dyecot Ltd. - (Guj.) = (Guj.) were also considered. A detailed analysis of Rule 14 of the Cenvat Credit Rules is set out and after a critical analysis of relevant statutory provisions and judgments of the Apex Court and other relevant precedents, the jurisdictional High Court in Bill Forge Pvt. Ltd. set out clear reasons for its conclusion that there is no liability to interest on mere indication of entitlement to Cenvat credit and that the interest liability would arise only if Cenvat credit had been utilized, by payment of duty legally due to the Government.

19. In the aforesaid circumstances, it is impermissible to this Tribunal to hold that the judgment of the jurisdictional High Court in Bill Forge Pvt. Ltd. (supra) is per incuriam. This doctrine which permits avoidance of an otherwise binding precedent, is not to be resorted to for the reason that the Tribunal, subordinate in precedential hierarchy to a High Court, considers the law propounded by the superior Court as not commending its acceptance. The observations of the Single Member Bench in Dr. Reddy’s Laboratories Ltd. (supra) and of the Division Bench in Bharat Heavy Electricals Ltd. (supra), that the decision of the Hon’ble Karnataka High Court in Bill Forge Pvt. Ltd. is per incuriam, do not represent the correct and authorized application of the per incuriam principle. These decisions are accordingly overruled, to that extent.

20. The decision of the Larger Bench in Kashmir Conductors (supra) has been referred to and approved by the Hon’ble Supreme Court in Collector Of Central Excise v. Rallis India Ltd.. - (S.C.). The decision of the Hon’ble Karnataka High Court in Bill Forge Pvt. Ltd. being the decision of the jurisdictional High Court and in the context of the fact that the entire cause of action, the transactions in issue, the territory within which the appellant-assessee conducts its business and has its registered office and whereat proceedings were initiated and culminated, constitutes the operative law, for the parties to this appeal. Though the Hon’ble High Courts of Madras, Bombay and Chhattisgarh are seen to have taken a contrary view, have distinguished and were not persuaded to accept the ratio expounded by the Hon’ble Karnataka High Court, this would not result in eclipse of the precedential vitality of the jurisdictional High Court’s ruling, since while a High Court is at liberty to distinguish a persuasive decision of another High Court, the same would not amount to an overruling of the said decision nor operates to operate eclipse the precedential value of the other High Court’s ratio insofar as it applies as an exposition of law within the territorial limits of that High Court.

21. For the aforesaid reasons, we answer the reference by holding that the decision of the Karnataka High Court in Commissioner of C. Ex. & S.T., LTU, Bangalore v. Bill Forge Pvt. Ltd. - (Kar.) = (Kar.) constitutes the law governing and operative on the facts and transactions in the current appeal. Since the appellant had merely availed credit and had reversed the same before utilizing the availed credit for remittance of duty, interest liability would not arise.

22. The reference is answered as above.

(Order pronounced in open Court on 29-2-2016)