By TIOL News Service

BANGALORE, APRIL 11, 2013: THE Petitioner was issued a SCN dated 04/01/2012 alleging default in payment of Central excise duty during the period from December 2010 to May 2011 requiring the payment of excise duty on each consignment in cash, without utilizing CENVAT Credit until payment of outstanding amount together with interest. Petitioner paid the said amount for the months from December 2010 to May 2011 on 21.5.2011 (Rs.18,19,096/- including interest of Rs.56,062/-) and paid interest of Rs.18,262/- vide challan dated 21.5.2011 and challan dated 21.6.2011 (Rs.3,00,000/- including Rs.10,000/- interest). The further allegation was that during the months of December 2010 to May 2011 petitioner utilized CENVAT Credit amount of Rs.10,45,749/-, instead of discharging duty in PLA on consignment-wise clearances, without utilizing the CENVAT Credit.

In response to the SCN, the Petitioner replied that the prohibition from utilizing CENVAT Credit account under Rule 8(3A) of CER, 2002 is with reference to arrears and not the entire credit and, therefore, an amount of Rs.6,29,750/- has been correctly utilized. In addition, it was stated that there being no dispute that all arrears were cleared by May 2011, and if required to pay through PLA again, they will be entitled to take credit of that sum in CENVAT Credit account while the entire exercise is revenue neutral.

As regards interest, it was stated that Rule 8(3A) does not permit levy of interest on utilization of CENVAT Credit during the prohibition period and hence, no interest is leviable on Rs.10,45,749/-. As regard penalty, it was stated that petitioner being under a serious liquid crunch could not pay the duty within the stipulated time.

The adjudicating authority declined to accept the plea of the petitioner and by order dated 7.3.2012 held that the petitioner wrongly utilized the CENVAT Credit for payment of Rs.10,45,749/- towards Central Excise duty for the months of December 2010 to May 2011, and, hence it is to be treated as non-payment of duty under Rule 8 of the Central Excise Rules, 2002, with a further direction to demand the same from the petitioner in cash in terms of Rule 8(3A) of the CER, 2002 read with Section 11A of the CEA, 1944, in addition to recovery of interest under Section 11AB of the CEA, 1944 and penalty of Rs.50,000/- under Rule 25 of the CER, 2002.

In appeal, the Commissioner(A) directed the petitioner to make a pre-deposit of Rs.10,45,749/- in cash and report compliance by 25.1.2013 failing which appeal would stand dismissed for non-compliance.

So, the matter is taken to the High Court.

It is inter alia submitted that the duty of Rs.20,45,600/- and Rs.84,324/- towards interest, was paid, in respect of consignments removed during the months of December, 2010 to May, 2011 and therefore, the Appellate Authority was not justified in directing a pre-deposit as it would amount to double payment.

The Revenue representative justified the order of the lower appellate authority by submitting that sub-Rule (3A) of Rule 8 of the CER, 2002 is unambiguous and does not admit of any interpretation other than cases of default in the payment of duty i.e. if the assessee fails to make payment of the duty within 30 days from the date the duty falls due, he is disentitled to utilise the CENVAT Credit for payment of duty, penalty and interest. In other words, on failure to pay the duty within the time stipulated under Sub-Rule (1) of Rule 8 and a further period of 30 days under Sub-Rule (3A), the assessee is disentitled to use the credit facility and is liable to pay duty for each consignment at the time of its removal and it is only after the assessee pays the entire outstanding amount including interests thereon, they will be entitled to utilise the credit facility and not otherwise. Inasmuch as since the amount of Rs.10,45,749/- paid by the petitioner by utilizing the CENVAT Credit, though unavailable to the petitioner, in law, was a nullity and could not be recognised as payment towards duty, the Commissioner(A) was fully justified in directing the petitioner to deposit Rs.10,45,759/- towards pre-deposit, a mandate under s.35F of the CEA, 1944.

The High Court observed -

‘10. Having heard the learned counsel for the parties, perused the pleadings and examined the order impugned, under Sub-Rule (1) of Rule 8 of the Central Excise Rules, 2002 if an assessee, failed to pay the duty within the time stipulated i.e. on the 6th day of following month if it is paid electronically through internet banking or on the 5th day of following month in any other case, and a further period of 30 days under Sub-Rule (3A) is disentitled to make use of the CENVAT Credit. In the admitted facts, petitioner defaulted in the payment of duty for the months of December 2010 to May 2011, but did so with interest on 21.5.2011 in a sum of Rs.20,45,600/- towards duty and Rs.84,324/- towards interest and also payment of Rs.10,45,749/- towards duty by utilizing the CENVAT Credit, without disclosing the particulars against which it was paid nor the date of payment. Hence, it is not possible for this Court, at this stage to accept the plea of the petitioner as aired by its learned counsel, while I find force in the submission of the learned counsel for the revenue.

11. The order impugned does not suffer from serious infirmities occasioning grave injustice to the petitioner calling for interference in exercise of extraordinary writ jurisdiction under Article 226 of the Constitution of India.

Holding that the petition was devoid of any merits, the same was rejected and the petitioner was directed to comply with the order of the Commissioner(A).

(See 2013-TIOL-285-HC-KAR-CX)