:- Default under Rule 8(3A) of CER, 2002.

Case:-M/s SNE INDIA PVT LTD Vs COMMISSIONER OF CENTRAL EXICSE, DELHI-II

Citation:- 2014-TIOL-272-CESTAT-DEL

Brief facts:-The noticee has not paid the duty on the goods removed from their factory premises for the period from April-10 to November-10, as per the returns filed by them, short payment was subsequently made good by them by depositing in PLA. However, as for the subsequent period they continued to clear their goods by debiting their duty from Cenvat credit account, Revenue entertained a view that in return of provisions of Rule 8, the appellant should have paid duty out of PLA instead of utilizing the Cenvat credit account. Accordingly, proceedings were initiated against the appellant resulting in confirmation of demand of Rs. 13,39,225/- along with confirmation of interest and imposition of penalty of Rs. 2,25,000/- in terms of provisions of Rule 25, Rule 26 and Rule 27.

Reasoning of judgment:-After hearing both sides, the tribunal found that the appellant defaulted in payment of duty in terms of Rule 8 during the period October, 2010 to November, 2010. The said short payment was subsequently made good by them by depositing in PLA. However, as for the subsequent period they continued to clear their goods by debiting their duty from Cenvat credit account, Revenue entertained a view that in terms of provisions of Rule 8, the appellant should have paid duty out of PLA instead of utilizing the Cenvat credit account. Accordingly, proceedings were initiated against the appellant resulting in confirmation of demand of Rs. 13,39,225/- along with confirmation of interest and imposition of penalty of Rs. 2,25,000/- in terms of provisions of Rule 25, Rule 26 and Rule 27.

For the purpose of interim stay, the tribunal found that it 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 [2012 (276) ELT 273(Tri.-Mum)] as also to a latest decision of Ahmedabad Bench in the case of F.S. Engineers vs. CCE, Ahmedabad [2013 (293) ELT 61 (Tri.Ahmd)] = (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 (286) ELT 628 (Tri)] = (2012-TIOL-1708-CESTAT-BANG). As regards penalty, the tribunal found that the issue is no more res integra and stands decided by the Gujarat High Court in the case of CCE vs. Saurashtra Cement Ltd. reported in [2010 (260) ELT 71 (Guj)] = (2010-TIOL-889-HC-AHM-CX) when the appeal filed by the Revenue against the order of the Tribunal was dismissed. The said decision stand followed by the Hon'ble Gujarat High Court in subsequent case and by Tribunal in number of matters.

The appellant has paid the duty liability through Cenvat credit. Tribunal decision referred (supra) interpreted the provisons of Rule 8 of Central Excise Rules and has come to a finding that the utilization of Cenvat credit during the period of default results only in interest loss of the Revenue. Similarly as regards penalty, the tribunal found that apart from the fact that show cause notice proposed imposition of penalty only under Rule 27 which prescribe maximum penalty of Rs. 5,000/-, the law is already otherwise settled by the above referred decision. For the purpose of stay no different views are required to be adopted at this interim stage and the tribunal following the earlier decision, grant waiver of deposit of duty, which already stand paid by the appellant through Cenvat credit and direct them to deposit an amount of Rs. 5,000/- (Rupees Five thousands only) towards penalty within a period of four weeks from today, subject to which the balance amount of deposit of penalty shall stand waived and its recovery stayed during the pendency of the appeal.
On the other side , the technical member of the tribunal stated essential statements as below:-

(a) The technical member concurred with the decision in the case of M/s Saurashtra Cement 2010 (260) ELT 71 = (2010-TIOL-889-HC-AHM-CX)and penalty of Rs.5,000/- under rule 27 has been imposed.
(b) Secondly, the technical member did not agreed with the justification of duty payment consignment-wise by using Cenvat credit has also been justified. It is observed that draft decision by Member (Judicial) arrived at by relying on Tribunal's decision in Solar Chemferts Pvt. Ltd. Vs. CCE, Thane 2012 (276) E.L.T. 273 (Tri. Mumbai) and CESTAT, Ahmadabad' Bench decision in F.S. Engineers Vs. CCE Ahmadabad 2013 (293) ELT 61 (Tri. Ahmd.) = (2013-TIOL-880-CESTAT-AHM) wherein it has been held that utilization of Cenvat credit instead of payment of duty in cash, results in loss to the Revenue only to the extent of interest. Accordingly, the technical member passed separate order.

They provide some provisional clarity for utilization of Cenvat Credit instead of PLA as under:

(a) To appreciate payment of duty consignment-wise through utilization of Cenvat credit in respect of clearance after default in payment of duty, it is proper to refer Rule 8 and specifically rule 8(3A) of Central Excise Rules 2002. Rule 8 (3A) provides a legal fiction according to which failure to pay duty consignment-wise through PLA shall be deemed that goods have been cleared without payment of duty and penal consequences shall follow. For ready reference, provisions of Rule 8 are reproduced.

Rule 8 of the Central Excise Rules, 2002 (hereinafter referred to as the rules provided that:-

"(1) The duty on the goods removed from the factory or the warehouse during a month shall be paid by 5th day of the following month:

Provided that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March.

(2) The duty of excise shall be deemed to have been paid for the purpose of these rules on the excisable goods removed in the manner provided under sub-rule (I) and the credit of such duty allowed, as provided by or under any rule.

(3) If the assessee fails to pay the amount of duty by the due date, he shall be liable to pay the outstanding amount along with an interest at the rate specified by the Central Government vide notification under section 11 AB of the Act, on the outstanding amount for the period starting with the first day after due date till the date of actual payment of the outstanding amount:

Provided that the total amount of interest payable in terms of this sub-rule shall not exceed the amount of duty which has not been paid by due date.

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 (4) 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 of assessee pays the outstanding amount of 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.

Rule 8(3A) of Central Excise Rules 2002 is reproduced as below:

"3A - If the assessee fails to pay the amount 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 (4) 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 of assessee pays the outstanding amount of 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.

4) The provision of section 11 of the Act shall be applicable for recovery of the duty as assessed under Rule 6 and the interest under sub-rule (3) in the same manner as they are applicable for recovery of any duty or other sums payable to the Central Government."

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 reported in 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. Judgment was rendered in respect of erstwhile Rule 8. Rule 8(1) and Rule 8 (4) have been referred.

Relevant Para 9, 10 and 11 are reproduced for reference:-

As noticed earlier, the duty of central excise is recovered at the time of removal of the goods from the factory. Thus, as and when a consignment is cleared excise duty becomes payable thereon. However, sub-rule (1) of Rule 8 of the Rules provides a facility of fortnightly payment of duty on all goods removed from a factory or warehouse. Hence, instead of paying excise duty on each removal, by virtue of the provisions of sub-rule (1) of Rule 8, in respect of goods cleared during the first fortnight duty is required to be paid by the 20th of the said month and in respect of the goods cleared during the second fortnight by the 5^th of the following month. Sub-rule (3) of Rule 8 provides for payment of interest in case of late payment of duty. Sub-rule (4) which is relevant for the present purpose provides for the consequences of non-payment of duty within the period prescribed and lays down that in case of default by the assessee in payment of any one installment beyond a period of thirty days from the due date, or in payment of installment for the third time in a financial year, the assessee shall forfeit the facility of payment of dues in installments for a period of two months from the date of communication of the order passed by the Deputy Collector of Central Excise in this regard or till such date on which all dues are paid, whichever is later. The sub-rule further provides that during such period the assessee shall be required to pay excise duty for each consignment by debit to the account current, failing which it shall be deemed that the goods have been cleared without payment of duty and the consequences and penalties under the rules would follow. Thus, Rule 8 of the Rules contains an inbuilt scheme which gives a facility of payment of Central Excise duty on a fortnightly basis and also provides for the consequences of breach of its provisions.

It may be recalled that the respondent-assessee, who was availing of the facility of payment of duty on a fortnightly basis under Rule 8 of the Rules, had defaulted in making payment on account of which, by an order passed by the Deputy Commissioner, the facility of making payment in installments under subrule (1) of Rule 8 came to be withdrawn. The assessee was, therefore, required to pay excise duty for each consignment by debit to the account current. However ,the assessee, instead of paying the excise duty by debit to the account current, made payment from the deemed credit account. It is the case of the appellant that payment out of deemed credit account is not equivalent to payment by debiting to the account current and as such the same amounts to clearance of goods without payment of duty. The case of the assessee before the authorities below was that it had paid the duty amount from the PLA and deemed credit accounts on consignment basis during the period of forfeiture of the facility of fortnightly payment, which cannot be termed as non-payment/short-payment.

On a plain reading of sub-rule (4) of Rule 8 of the Rules, it is abundantly clear that the same specifically provides that during the period of forfeiture of the facilities provided under sub-rule (1) the assessee shall pay duty on consignment basis by debit to the current account, that is, through the PLA. The said sub-rule does not envisage payment of duty in any other manner except from the current account and further postulates that non-payment as provided therein would tantamount to clearance of excisable goods without payment of excise duty. At noted earlier, in the present case, undisputedly the assessee had defaulted in making payment of excise duty in terms of sub-rule (1) of Rule 8 of the Rules pursuant to which the facility for making payment on a fortnightly basis had been forfeited. The assessee was therefore, required to make payment of duty consignment-wise from the PLA only and could not have utilized Cenvat credit till the outstanding amount including the interest thereon had been paid. The assessee, however, instead of making payment from the PLA (account current), had made payment from the deemed credit in breach of the directions issued by the Deputy Commissioner in the order withdrawing the facility and thereby clearly contravened the provisions of sub-rule (4) of Rule 8 of the Rules.

At lastLegal provisions as contained in Rule 8(3A) are very clear

"3A - If the assessee fails to pay the amount 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 (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excised duty for each consignment at the time of removal, without utilizing the CENVAT Credit till the date of assessee Pays the outstanding amount of 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."

It is clearly stipulated in rule 8(3A) that in case of default, assessee shall pay excise duty for each consignment at the time of removal, without utilizing Cenvat Credit.

Para 11 of Gujarat High Court also laid down clear law on the issue and it does not leave to interpretation that duty could be paid through Cenvat Credit even though it is mandatorily required, to be paid from current account. Accordingly interpretation held by Tribunal on this account is no more a good law.

In view of above, it clearly comes out that demand for payment of duty through cenvat account is not legal and proper and was required to paid through PLA. Accordingly the adjudicating member, they do not agree with views of learned Member (Judicial) for waiver of defaulted amount paid through Cenvat credit. It is considered necessary that duty paid through Cenvat credit be also paid through current account/PLA as a condition for hearing the appeal.

In view of above, the technical member of the tribunal was 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.

On deposit of penalty of Rs. 5,000/- (a concurred with Member (Judicial) and reversal of payment through Cenvat credit and subsequent payment from PLA along with interest, balance amount of penalty would remain stayed till final disposal of the appeal.

Difference of opinion

i) Whether it is correct in case of default to make payment from current account and direct pre-deposit of duty through current account /cash as held by Member (Technical)
OR
ii) Decision of Member (Judicial) justifying reversal from Cenvat account towards pre-deposit in relation to default is to be accepted.

In view of the difference among the member Judicial and member Technical, the matter was referred to the third member.

Decision:-Referred to Third Member

Comment:-The whole case is based on Rule 8 (3A) of the Central Excise Rules, 2002 where a defaulter should pay whole amount of duty from PLA A/c instead of CENVAT A/c. The issue is covered by contrary decisions and the fact that the matter of pre-deposit was referred to third member itself indicates the complexities in the issue. However, the Rule 8(3A) has been amended in the Budget 2014 wherein the provision as regards clearing the goods on payment of duty by PLA on each consignment has been done away. It is hoped that in light of the amendment, the issues for the prior period are resolved soon.

Prepared by:- Kushal Shah

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PJ/CASE LAW/2014-15/2407

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