had to inter-alia once again determine the issue of whether interest was to be paid from the date that CENVAT credits were admittedly erroneously availed or it was payable from the date that such credits were utilised to actually pay the duties on the finished product. The court took into account the relevant provisions of Rule 14 read in conjunction with Section 11AB relating to interest on delayed payment of duty. The court went into the CENVAT Credit Scheme in detail and noted that the rules permitted a manufacturer or a service provider to take CENVAT credit in respect of relevant inputs and that such credits could be utilised in order to discharge the liability of duty on finished products in relation to which such CENVAT credits pertained. Thereafter, the High Court took note of the decision of the Supreme Court in Pratibha Processors vs. UOI [2002-TIOL-273-SC-CUS], which held that interest was compensatory in character and was imposed on assessees who had withheld the payment of any tax that was due orpayable. The levy of interest was geared to the actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Accordingly, interest was different from penalty, which was penal in character. The court accordingly read down Rule 14 of the Rules to hold interest was payable where CENVAT credits had been taken and utilised wrongly and interest could not be claimed simply for the reason that CENVAT credits were wrongly taken since availment by itself did not create a liability to excise duty. The Court read Section 11AB of the Act and the Rules conjointly and came to the above conclusion. The point to be noted is that this decision of the High Court was based on Rule 14 of the Rules and had taken note of the fact that while it did envisage payment of interest even on erroneous availment of credits, the fact that interest was compensatory in nature and would hence only apply from the date of utilisation of such erroneously availed credit towards payment of excise duty on output had to be kept in mind as well and hence erroneous availment of input credits by itself could not trigger an interest payment. The distinction between a compensatory measure and a penal measure has been very well brought. As opposed to this salutary decision of the High Court, the Department, in a recently issued Circular No. 897/17/2009-CX dated 03.09.2009, has, without taking note of the aforesaid decision, stated that Rule 14 of the CENVAT Credit Rules is clear and unambiguous and that in a situation where CENVAT credit is wrongly taken or utilised interest does become payable. Accordingly it clarifies interest is payable where credit had been wrongly taken, even without being utilised towards payment of duty. This Circular of September 2009, which is a full two months subsequent to the passing of the order of the High Court, is clearly contrary to the legal position as enunciated in the aforesaid order। The point that interest is compensatory in character and hence could not apply in a situation of incorrect availment of credit has not been considered at all. Indeed, the most surprising point is that the
decision of the Punjab and Haryana High Court, which was on new Rule 14 of the Rules, has not been taken into account at all in arriving at the conclusion contained in the Circular. The Circular does however take note of the earlier decision of the High Court in the Maruti Udyog case which was, as indicated earlier, based on the erstwhile rules and distinguishes it on that basis without noting the subsequent decision based on the current Rules. It is hoped that the Department would take note of the correct position in law, as per the decision of the High Court in Ind Swift Laboratories, and withdraw the above Circular under reference.