By TIOL News Service

MUMBAI, MARCH 05, 2014: THE appellants are the manufacturers of printed and laminated plastic films which attracts Central Excise duty.

During the month of October, 2010, they cleared excisable goods, on which duty of Rs. 1,51,21,904/- was payable by them by 5.11.2010.

The appellants adjusted Rs. 1,43,29,033/- from the Credit Account relating to inputs/input services/Capital Goods. The balance duty amounting to Rs. 7,92,871/- was, therefore, required to be paid by them in cash through Account Current. In the monthly return filed by them, they have shown the said amount of Rs. 7,92,871/- as paid in cash through Account Current even though no such amount was paid by them.

On 25.11.2010, they adjusted the said amount from the accumulated Credit of Inputs etc. and which was apparently in contravention of rule 3(4) of CCR, 2004.

The said amount was finally paid by them in cash vide GAR-7 challan on 4.6.2011 and interest on the said defaulted amount was paid on 5.7.2011.

The department detected the above mentioned irregularity and informed the appellants vide letter dated 31.1.2011/15.2.2011.

Inasmuch as in terms of rule 8(3A) of the CER, 2002 as the appellant had defaulted in payment of duty beyond thirty days from the due date, they were required to pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date they paid the outstanding amount including interest thereon. As the appellant had not followed the rule laid down, it was to be deemed that such goods have been cleared without payment of duty.

Consequently, a SCN dated 30.11.2011 was issued to the appellant demanding duty of Rs. 8,00,09,346/- which was equivalent to the amount of CENVAT Credit utilized for clearance of goods during the period 6.12.2010 to 4.7.2011.

Another SCN dated 23.7.2012 was also issued demanding duty of Rs. 13,12,25,602/- in respect of the goods cleared during 5.7.2011 to 31.3.2012. The demand was made equivalent to the CENVAT Credit utilized by the appellants during the said period. The said demand was made on the grounds that the appellants have defaulted in payment of Rs. 8,00,09,346/- (covered by the first show-cause notice) through cash and, therefore, the provisions of Rule 8(3A) of CER, 2002 continues to operate for the subsequent period viz. 5.7.2011 onwards.

The demands were confirmed along with penalties by the CCE, Thane-II and, therefore, the appellant is before the CESTAT.

These were the submissions made by the appellant -

(i) They have paid an amount of Rs. 7,92,871/- on 25.11.2010 and, therefore, there was no default in making the payment;

(ii) Even if it is presumed that there was a default, the same has been paid on 5.7.2011.

(iii) During the period from 6.12.2010 to 4.7.2011, as per Rule 8(3A), they were required to pay the duty consignment-wise without utilizing the CENVAT credit. Since they were required to pay the duty consignment-wise there is no question of default of duty for the months of December, 2010 to June, 2011;

(iv) Since they have not paid the duty at the time of clearance of each consignment through PLA but utilized the CENVAT credit, all their clearances during the period are deemed to have been without payment of duty in terms of rule 8(3A).

(v) On 5.7.2011 when they paid the defaulted amount along with the interest, the credit earned during the earlier period is available to them for utilization. As per Board's Circular No. 962/05/2012-CX.8 dated 28.3.2012, arrears of duty can be paid from the CENVAT Credit Account. Thus the payment made during the period 6.12.2010 to 5.6.2011 in respect of the clearances made during the said period gets regularized. Revenue can, at the most, ask for the interest from the date of clearance to 5.6.2011.

(v) As far as the show-cause notice dated 23.7.2012 as during this period there was no amount outstanding due to default in monthly payment, therefore, SCN is not at all sustainable. What was payable on 5.7.2011 can, at the most, be considered as arrears of revenue and Rule 8(3A) is not applicable in respect of arrears of revenue.

(vi) The LB decision in Shiv KripaIspat Pvt. Ltd. 2009-TIOL-388-CESTAT-MUM-LB, is adverted to emphasize that since no goods have been seized or confiscated no redemption fine is imposable.

(vii) Penalty u/r 25 of CER cannot be imposed in view of Gujarat High Court decision in the case of Saurashtra Cement Ltd. 2010-TIOL-889-HC-AHM-CX.

The Revenue representative reiterated the facts and while justifying the order of the adjudicating authority relied upon the decision of Madras High Court in UnirolsAirtex vs. Assistant Commissioner of Central Excise, Coimbatore - 2013-TIOL-684-HC-MAD-CX and the Karnataka High Court decision in the case of M/s. Manjunatha Industries vs. CCE, Bangalore - 2013-TIOL-285-HC-KAR-CX .

The Bench rejected the preliminary contention of the appellant that they have made good the default committed in October 2010 by debiting in CENVAT Credit account on 25th Nov. 2010 by adverting to the first proviso to Rule 3(4) of the CCR, 2004.

And further observed - "Admittedly, they did not have balance in CENVAT Credit account as on 31st Oct. 2010 to pay the defaulted amount of Rs. 7,92,871/-. In view of this provision, we reject this contention of the appellants. The default period is from 6.12.2010 to 4.7.2011. Rule 8(3A) of the Central Excise Rules very specifically provides that the assessee shall pay excise duty for each consignment at the time of removal without utilizing CENVATcredit till the date the assessee pays the outstanding amount, interest thereof and penalty…."

However, while agreeing with the appellant that the goods cleared during 6.12.2010 to 4.7.2011 are deemed to be cleared without payment of duty and the duty amount will be required to be recovered as arrears of revenue, the Bench, after extracting the order of the Madras High Court in the case of UnirolsAirtex (supra) held that even when the said amount is required to be paid as arrears of revenue the same will have to be paid in cash without utilization of the CENVAT credit since any other interpretation of rule 8(3A) of CER would make the restriction relating to utilization of credit meaningless. The Bench further observed that it is settled law that what is not allowed directly cannot be allowed/claimed indirectly and hence the Board's circular dated 28th March, 2012 cited by the appellant will not be applicable. In fine, it was held thus -

"We, therefore, hold that the appellants are required to pay an amount of Rs. 8,00,09,346 which is equivalent to the CENVAT credit utilized during the period 6.12.2010 to 4.7.2011 in cash. They will, however, be free to take CENVAT credit of equivalent amount and utilize it for future clearances."

The Commissioner's order regarding imposition of interest in respect of the first SCN was also upheld; in view of the LB decision in Shiv KripaIspat Pvt. Ltd. (supra) confiscation and imposition of redemption fine was set aside and penalty imposed u/r 25 of CER, 2002 was also set aside citing the Gujarat High Court decision in Saurashtra Cement Ltd. (supra).

In the matter of the second SCN dated 23/07/2012, the Bench observed -

"9. …, since we have held that non-payment of duty as stipulated under Rule 8(3A) during the period December 2010 to 4.7.2011 is not default in monthly payment of duty as envisaged under Rule 8(1) of the Central Excise Rules, the demand under the said show-cause notice is to be considered as recovery of arrears. There is no restriction to utilize the CENVAT credit in respect of goods cleared subsequent to making good of default. Accordingly, we set aside the demand raised in the demand notice dated 23.7.2012. Consequently, interest, penalty, redemption fine are also set aside."

The appeals were disposed of in above terms.

(See 2014-TIOL-344-CESTAT-MUM)