Whether closed or defunct units are liable to pay Penalty under 12(6) of CER, 2002?
MAY 31, 2016
By Divakar Rao Ch
WITH liberalization of Central excise and Service tax regimes, the compliance levels appear to have come down especially w.r.t filing of the returns within the due dates. To ensure better compliance of filing of various returns by the trade and industry within the statutory due dates change has been brought by Notification No. 8/2015–Central Excise (N.T.), Dt01.03.2015,by insertion of sub rule 6 in Rule12 of Central Excise Rules, which reads as follows:
"(6) Where any return referred to in this rule is submitted by the assessee after due date as specified for every return or statements, the assessee shall pay to the credit of the Central Government, an amount calculated at the rate of one hundred rupees per day subject to a maximum of twenty thousand rupees for the period of delay in submission of each such return or statement."
With the insertion of this sub rule in Rule 12 of Central Excise Rules,2002, the officers of the Department have been entertaining a nagging doubt, especially in cases of the units that have become defunct/closed as to whether arrear demand notices for Rs.20000/- (maximum prescribed under the cited sub rule)have to be raised for each return not filed even after 200 days from the date it became due, as the said amount would be the maximum that could be demanded, treating any latter submission as delayed submission.
This assumes significance in cases where the units were closed/defunct long back and desire to surrender the registration now. Any such unit, if makes an application for surrender of registration,were invariably asked to submit the ‘NIL' returns for the whole period for which they have not submitted the returns.Upon submission of the returns for the said period, in case of the returns that should have been filed prior to Dt.1.3.2015, they are show caused as to why penalty under Rule 27 of Central Excise Rules, 2002 should not be imposedand in respect of each return that should have been filed after Dt.1.3.2015,they are asked to pay arrears of penalty/late fee @ Rs.100/- per day with maximum being Rs.20000/- for each of such return under Rule 12 ibid. Thus, the penalties amounts are running in excess of Rs.2 lakhs and above in some instances.
Insertion of sub rule 6 in Rule 12 of Central Excise Rules,2002 appears to have quite unintended consequences and do not appear to be in harmony with the policy of ‘ease of doing business'. The officers of the Department do not have any discretion to reduce the penalty in the matters of Rule 12 ibid. Is there a way out of this rule bound complexity?
Here are the illustrations of the situations in which some solace could be found by defunct/closed units:
| I. Units that have become defunct in /prior to FY 2013-14: |
a. Having aggregate clearances equal to or exceeding Rs.400 lakhs in/prior to FY 2013-14:
In this case, the units would become liable for filing of returns only for FY 2014-15/the subsequent FY (Financial Year),as the case may be, and after that they, by default, fall in the category of units covered under Notification 8/2003 CE Dt.1.3.2003, unless unit opted out in writing to the Jurisdictional Assistant/Deputy Commissioner. Accordingly, it appears that no SCN or arrear notice can be issued for the subsequent period either under Rule 27 or sub rule 6 of Rule 12 of Central Excise Rules, 2002, with the exception of the FY 2014-15/ the subsequent FY (Financial Year), as the case may be.
Non-filing/delayed filing of the returns for the period 2014-15/ the subsequent FY, as the case may be, falls within the provisions of Rule 27 of Central Excise Rules, 2002.Accordingly, if a show cause notice is issued,the unit can make a request to the adjudicating authority during the proceedings to condone or levy minimum penalty as the non-submission of ‘NIL' returns is on account of closure of unit. However, the returns pertaining to February, 2015 and March, 2015, get exposed to the operation of sub-rule 6 of Rule 12 of Central Excise Rules,2002 inasmuch as the due dates for submission of the said returns fall after Dt.1.3.2015 (the effective date for Sub rule 6 of Rule 12 of Central Excise Rules,2002)
b. Having aggregate clearances not exceeding Rs 400 lakhs in /prior to FY 2013-14
In this case, the units by default fall in the category of units covered under Notification 8/2003 CE Dt.1.3.2003 from FY the 2014-15 or from the subsequent FY,as the case may be. Accordingly, it appears that no SCN or arrear notice can be issued either under Rule 27 or sub rule 6 of Rule 12 of Central Excise Rules, 2002.
| II. Units that have become defunct in /after FY 2014-15: |
a. Having aggregate clearances equal to or exceeding Rs.400 lakhs in /after 2014-15
In this case, the units would become liable for filing of returns only for the FY of 2015-16/ for the subsequent FY as the case may be and they, by default, fall in the category of units covered under Notification.8/2003 CE Dt.1.3.2003 from the next FY onwards, unless unit opts out in writing to the Jurisdictional Assistant/Deputy Commissioner. Non-filing/delayed filing of the returns for the period 2015-16 or the subsequent year,as the case may be, falls within sub rule 6 of Rule 12 of Central Excise Rules, 2002. The units may get exposed to penalty/late fee of maximum of Rs.20000/- in each case of non filing/delayed filing of the return.
b. Having aggregate clearances not exceeding Rs 400 lakhs in /after 2014-15
In this case the units by default fall in the category of units covered under Notification.8/2003 CE Dt.1.3.2003 for the FY 2015-16 or from the subsequent FY onwards, as the case may be. Accordingly, it appears that no SCN or arrear notice can be issued for FY 2015-16 or for the subsequent FY onwards,as the case may be either under Rule 27 or sub rule 6 of Rule 12 of Central Excise Rules, 2002.
Trade and industry fondly hope for introduction of a proviso to Rule 12 of Central Excise Rules,2002 similar to that of 7(C) of Service Tax Rules,1994 which enables the Central Excise officer to reduce or waive the penalty, where the gross amount of service tax payable is nil, on being satisfied that there is sufficient reason for not filing the return.
Note:In all above instances units having aggregate clearances less(in cases of opted out of the benefit of Notification No.8/2003, Dt 1.3.2003) /equal or exceeding Rs.400 lakhs in the previous financial year get exposed to action under either under Rule 27 or sub rule 6 of Rule 12 of Central Excise Rules, 2002 as the case may bein the Financial year in which they become defunct/closed.
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