IMPORTANT POINT
The court established that interest on Cenvat credit is due from the date of deposit when collected under coercion, highlighting the limits of authority during searches.

ORDER :

Bhargav D. Karia, J.

1. By way of this petition under Article 226 of the Constitution of India, the petitioners have prayed for the following prayers :-

“(A) Your Lordships be pleased to direct the respondent authorities by way of an appropriate writ, order or direction or appropriate writ of Mandamus, or any such other writ order or direction, to immediately calculate and grant interest @ 12% from the date of deposit of Rs.12,90,000/- i.e. 7-4-199, till date, within 30 days and failing which to grant 9% interest therefrom, till its actual payment.

(B) Any other reliefs deem fit, proper and incidental in the facts of the present case may kindly be granted

2. The brief facts of the case are as under:-

2.1 An intelligence search was conducted on 6.4.1999 by the officer of the DGCEI at the premises of the petitioners alleging that the petitioners have received certain raw materials based on purchase invoices, without actually physically receiving any material and availed Cenvat credit. However, no discrepancy whatsoever was found on the physical stock verification vis-a-vis statutory records maintained by the petitioner.

2.2. It is case of the petitioners that the petitioners were constrained to deposit an amount of Rs.12,90,000/- from their PLA Cenvat Account vide entry No. 2 dated 7.4.1999 and from their Cenvat Credit A/c. vide entry No. 23 by the officers of DGCEI.

2.3 The show cause notice dated 7.10.1999 was issued seeking to recover an amount of Rs.48,44,855/- towards Modvat/Cenvat Credit availed along with interest and penalty from the petitioners. The show cause notice reads as under:-

“23. Now therefore, M/s. JEIL are hereby required to show cause to the Commissioned of Central Excise (Adjudication), Mumbai, having his office situated at New Central Building, 5th floor, M.K. Road, Church gate, Muinbal-400020, as to why :

(a) modvat amounting to Rs.48,11,855/- (Rupees forty eight lakh eleven thousand eight hundred fifty five only) being the credit taken on their Inputs, which were taken as detailed in Annexure Al of the Show Cause Notice should not be disallowed and recovered from them under clause (i) read with clause(ii) of Rule 57 1(1) of the Central Excise Rules 1944.

(b) penalty equal to the amount of modvat credit determined to be disallowable and recoverable, should not be demanded and recovered from them under the provision of Rule 57 1(4) ibid;

(c) interest at the rate of 20% on the amount of Modvat credit determined to be disallowable and recoverable, should not be demanded and recovered from them under the provision of Rule 571(5) ibid;

(d) why the amount of RS. 12,90,000/- (Rupees twelve lakh ninety thousand only) paid by them through their P.L.A. Entry No. 2 dated 7.4.99 and through their modvat account Entry No. 23 dated 7.4.99 should not be appropriated against the demand;

(e) why the land, building, plant, machinery, material conveyance or any other things used in connection with the manufacture/production, storage, removal or disposal of such goods or nah other excisable goods of such land or in such building or produced or manufactured with such plant, machinery, material of things should not be confiscated under Rule 173-Q(2) of Central Excise Rules, 1944.”

3. After considering the reply to the show cause notice, the same was adjudicated vide order dated 26.8.2004 and the amount deposited by the petitioners on 7.4.1999 was appropriated towards the demand raised in the order in original which reads as under:-

“1. I hereby, disallow and order recovery of the modvat credit amounting to Rs.48,11,855/- (Rupees Forty eight lakh eleven thousand eight hundred fifty five only) wrongly availed from M/s. Jord Engineers India Limited, Village Ishwarpura, Asoj, Halol Road, Vadodara under clause (i) read with clause (1) of Rule 571 of the Central Excise Rules, 1944. I appropriate the amount of Rs.12,90,000/- (Rupees Twelve lakh ninety thousand only) paid by them through their P.L.A. Entry No. 2 dated 07.04.99 and through the