Consequences of utilising cenvat credit during the period of default under Rule 8(3A).

PJ/Case Law/2013-14/2002

Case:- KALP CORPORATION Vs COMMISSIONER OF C. EX., AHMEDABAD-III

Citation:- 2013 (297) E.L.T. 396 (Tri. - Ahmd.)

Brief facts:- The appellant herein had debited an amount of Rs. 1,62,182/- during the period 1-5-2011 to 11-6-2011 in Cenvat account for the clearances. Prior to this material period, appellant had defaulted payment to the Government of India, as provided by Rule 8 of the Central Excise Rules, 2002. Such default was also made good by them. The Revenue Authorities had issued a show cause notice for recovery of an amount of Rs. 1,62,182/-, interest thereof and imposition of penalties on the ground that after default, the appellant could not utilise the credit in their Cenvat account and should have paid the amount through PLA consignment wise. In the case in hand, the appellant had paid an amount of Rs. 1,62,182/- through TR-6 challan.

Appellant’s contentions:- The ld. consultant on behalf of the appellant submitted that the interest which had been demanded from the appellant on an amount of Rs. 1,62,182/- was incorrect, as the appellant during the relevant period had debited the amount in Cenvat account which would indicate that they were unable to utilise the said amount in future. It was his submission that the issue was covered by the decision of the Tribunal in the case of Solar Chemferts Pvt. Ltd. - 2012 (276)E.L.T.273. It was his submission that as the appellant had paid the amount to the Government of India, the question of interest did not arise. As regards the penalty imposed under Rule 25, it was his submission that the judgment of the Tribunal in the case of Solar Chemferts Pvt. Ltd. was considering the very same issue and Hon’ble High Court of Gujarat in the case of Saurashtra Cement Ltd. - 2010 (260)E.L.T.71 (Guj.)had held that imposition of penalty under Rule 25 would not arise in the case of falling under Rule 8 of Central Excise Rules, 2002. As regards the penalty imposed under Rule 27 of the Central Excise Rules, 2002, it was his submission that the amount involved in this case being very small, penalty of Rs. 5,000/-, was excess, should be reduced proportionately.

Respondent’s contentions:- Ld. D.R. reiterated the findings of the lower authorities for recovery of interest and that the penalty be imposed on the ground that after default, the appellant could not had utilise the credit in their Cenvat account and should have paid the amount through PLA consignment wise.

Reasoning of judgment:- It was undisputed that the appellant during the period 1-5-2011 to 11-6-2011 had utilised the Cenvat credit available with them for discharge of the duty liability which they were not supposed to do so having defaulted in making the payment to the government under Rule 8 of the Central Excise Rules, 2002. It was also undisputed that the said amount of Rs. 1,62,182/- was paid by them through TR-6 challan in cash on being pointed out.
The issue to be decided in the case in hand was whether the appellant was required to discharge the interest on the said amount of Rs. 1,62,182/- and also whether the appellant was required to be penalised under Rule 25 of the Central Excise Rules, 2002 and Rule 27 of the Central Excise Rules, 2002.
As regards the interest issue, Hon’ble judge found that there was no dispute as to discharge of duty liability by the appellant through the Cenvat account which had balance. Despite the fact that the said duty liability on the finished goods cleared by the appellant had been discharged by them by utilising the Cenvat credit and hence government was for all practical purposes not deprived of duty. The said procedural infraction of paying the amount through Cenvat account had been made good by the appellant subsequently on being pointed out, through TR-6 challan. Hon’ble judge found strong force in the argument of the ld. consultant that the decision in the case of Solar Chemferts Pvt. Ltd. (supra) on the issue was in favour of the assessee. He reproduced the ratio as contained in paragraph 13 of the said decision.

“13. It is also relevant to note that even the consequence under the Act are that duty will have to be paid, interest will have to be paid, penalty will have to be paid and goods are liable to confiscation. In fact there is nothing in the Act which will bar payment of such short paid duty from Cenvat credit. Once the Act and Rule 8(3A) are read together a harmonious interpretation will be that during the period of default, payment through Cenvat credit will not be due discharge of duty. Interest will be payable so long as there is no proper discharge of duty. This is a consequence from Act but that will follow even if it is not mentioned in the rules. That is to say duty paid during the defaulting period will be proper discharge once the default in payment from PLA. For the month of Dec. 2006 in this case, is made good and applicable interest is paid. With the result the only consequence that arises in this case is payment of interest and penalty. But interest will be payable from the date of each clearance to the date on which the default is made good that is 20-4-2007. This is so because once the defaulted amount is paid, thereafter the payment made through Cenvat become proper even if it is before the date on which defaulted amount is paid. So we do not find it necessary to ask the appellant to pay duty in cash and take re-credit of equivalent amount debited in Cenvat credit account earlier.”

As regards the penalty imposed on the appellant under Rule 25 of the Central Excise Rules, 2002, the same may not be attracted, as the said provisions, were regarding the non-payment of Central Excise duty on the goods cleared by an assessee while in the case in hand there was no dispute as to the discharge of duty liability from Cenvat account, although barred from doing so. He found that the ratio of the decision of the Hon’ble High Court of Gujarat in the case of Saurashtra Cement Ltd. (supra) and the decision of this Tribunal in the case of Solar Chemferts Pvt. Ltd. (supra) for utilising the Cenvat credit during the default period penalty under Rule 25 of the Central Excise Rules, 2002 was not attracted. In view of this, the penalty imposed on the assessee under Rule 25 of the Central Excise Rules, 2002 was liable to be set aside.

As regards the penalty imposed under Rule 27 of the Central Excise Rules, 2002, Hon’ble judge found that the appellant had violated the provisions of Central Excise Rules, 2002 by utilising the Cenvat credit for discharge of duty liability when he was debarred to do so, having defaulted in making payments as per the Central Excise Rules, 2002. To that extent, he found that both the lower authorities were correct in imposing Rs. 5,000/- on the appellant under Rule 27 of the Central Excise Rules, 2002. The appeal filed by the appellant challenging on such imposition of penalty was devoid of merits, and was rejected.

In sum, the appeal filed by the appellant was rejected to the extent it was challenging the imposition of penalty under Rule 27 of the Central Excise Rules, 2002 and the appeal filed by the appellant to the extent challenging the imposition of interest and penalty under Rule 25 of the Central Excise Rules, 2002 was allowed. The appeal was disposed of as indicated hereinabove.

Decision:- Appeal partly allowed.

Comment:- The gist of this case is that even if the cenvat credit has been utilised during the period of default under Rule 8(3A), then also the assessee is liable to pay interest on the irregular utilisation of credit till the default has been actually made good by them. Moreover, the credit wrongly utilised will be admissible as re-credit on making payment in cash and so the demand of duty to be paid in cash is not feasible. Further, penalty under Rule 25 is also not imposable in view of the High Court judgement in the case of Saurashtra Cement Ltd. Hence, only interest is to be paid by the assessee for irregular cenvat credit utilisation and penalty under Rule 27 for not complying with the provisions of Central Excise Rules, 2002.

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