By TIOL News Service

NEW DELHI, JULY 10, 2014: AS on date Rule 8(3A) of the CER, 2002 reads –

"If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (3) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon; and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow."

This provision was not without its fair share of litigation just like any other.

Perhaps, saddened by the humongous expletives being doled out by the Trade, the Board came out with a proposal for review of this sub-rule.

This is what the Board letter F. No.201/08/2013-CX-6 mentioned –

Trade has represented that the provisions of Rule 8(3A) needs to be reviewed as the rule does not make a distinction between cases of bonafide mistake which can lead to default in payment of duty and cases of willful default.

2. Examination of the issue shows that tribunal has in judgments such as Meenakshi Associates [para 15 and 16 in  2012-TIOL-587-CESTAT-DEL,  Baba Viswakarma Engg Co  [para 11, 12 and 13 2011-TIOL-2010-CESTAT-DEL and  Bactolac Formulations  [para 5 of  2012-TIOL-970-CESTAT-BANG ] has allowed credit to be used even during the period of default.

3. Further, the enforcement of this rule for imposing penalty under rule 25 needs adjudication proceedings to be undertaken. In view of the above need for amending the rule is being examined. In this regard input from the field is needed on the following issues -

(i) Whether non-compliance of Rule 8(1) has become lesser by introduction of Rule 8(3A)?

(ii) Whether the rule is being enforced in all cases of default?

(ii) Whether goods cleared during the period of default are being seized as they are liable for confiscation?

(iii) In view of the judicial pronouncements listed at para 2, is the rule continuing to serve its purpose of timely and complete payment of duty?

(iv) Whether a rule of imposing automatic and mandatory penalty at the rate of 1% per month on the defaulted amount would better serve the purpose as it would reduce the grace period of 30 days given in the present rule, would do away with adjudication proceedings needed to impose penalty at present,

(v) Any other suggestion.

It seems the Board got AYES to its proposal mentioned at serial no. (iv) referred above and has, therefore, decided to substitute the said sub-rule with effect from tomorrow i.e. 11.07.2014.

The TRU letter dated 10.07.2014 says that the new sub-rule provides that in case of default in payment of duty, the assessee shall on his own pay a penalty of 1% per month on the amount of duty not paid for each month or part thereof.

And this is what the substituted rule reads -

"(3A) If the assessee fails to pay the duty declared as payable by him in the return within a period of one month from the due date, then the assessee is liable to pay the penalty at the rate of one per cent on such amount of the duty not paid, for each month or part thereof calculated from the due date, for the period during which such failure continues.

Explanation- For the purposes of this sub-rule, "month" means the period between two consecutive due dates for payment of duty specified under sub-rule (1) or the first proviso to sub-rule (1), as the case may be."

The Explanation cleverly gives the government an extra pound of flesh to feast upon by way of penalty if the default extends to the month of March or the succeeding month since even a part of the month would be considered as a month!

The notification carrying out this amendment is 19/2014-Central Excise (N.T.) dated 11 th July, 2014.

And what if the assessee "on his own" does not pay the 1% penalty?