By TIOL News Service

NEW DELHI, FEB 21, 2014: THIS is a case of default in payment of Central Excise duty. As per Rule 8(3A) of the Central Excise Rules, 2002, the assessee is required to pay duty consignment-wise, without utilizing CENVAT Credit during default period. However, the assessee continued to clear the goods by debiting the duty from CENVAT account. Accordingly proceedings were initiated resulting in demand of Rs. 13,39,225/- toward duty along with interest and penalties.

While disposing the stay application, the Member (J) held:

For the purpose of interim stay, we find that the Tribunal has considered the said issue in number of decisions and has held that in case of default in payment of duty in terms of Rule 8, subsequent utilization of Cenvat credit for clearance of goods would result only in confirmation of demand of interest, inasmuch as there would be no Revenue loss. Reference in this regard can be made to the Tribunal's decision in the case of Solar Chemferts Pvt. Ltd. vs. Commissioner 2011-TIOL-1968-CESTAT-MUM as also to a latest decision of Ahmedabad Bench in the case of F.S. Engineers vs. CCE, Ahmedabad (2013-TIOL-880-CESTAT-AHM). It stands held by the Tribunal that in case of utilization of credit instead of payment of duty in cash it results in loss to the Revenue only to the extent of interest. To the same effect is the decision of Tribunal in the case of Manipal Springs Ltd. vs. Commissioner (2012-TIOL-1708-CESTAT-BANG). Accordingly, following the earlier decisions, Member (J) granted waiver of deposit of duty, which already stand paid by the appellant through Cenvat credit and directed them to deposit an amount of Rs. 5,000/- towards penalty.

However, Member (T) held:

As per clear legal provisions, assessee was required to pay duty consignment-wise and could not utilize Cenvat credit till outstanding amount including interest was paid. When rule clearly stipulates that Cenvat credit cannot be utilized under such circumstances, utilization of Cenvat credit became legally improper. Otherwise these legal provisions would become redundant. Utilization of Cenvat credit when there was clear legal bar; it results in attempt to twist the legal provisions for their use. It is fact on record that appellants have deliberately utilized cenvat credit when they were required to pay through current account.

However it is seen that in recent decision of Hon'ble Gujarat High Court in the case of Commissioner of Central Excise Vs. Harish Silk Industries 2013 (288) E.L.T. 74 (Guj.), Hon'ble Gujarat High Court has clearly observed that payment of duty from Cenvat account was not permissible when ordered to be made from PLA due to default in fortnightly payment.

Accordingly interpretation held by Tribunal on this account is no more a good law. It is considered necessary that duty paid through Cenvat credit be also paid through current account/PLA as a condition for hearing the appeal. I am of the firm view that deposited amount in Cenvat credit is required to pay through cash or current account along with leviable interest. Already reversed amount of Rs. 13,39,225/- paid through Cenvat credit is directed to be paid through PLA/ current account.

In view of difference of opinion, the matter has been referred to Third Member to resolve the issue.

Incidentally, a similar reference has been made by the same Bench in the case of Bakewell Agro Ltd. [2014-TIOL-138-CESTAT-DEL]

(See 2014-TIOL-272-CESTAT-DEL)