Mis-calculation cannot be equated with default under Rule 8(3A).

PJ/CASE LAW/2014-15/2485

Case:-M/s ESSAR STEEL INDIA LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, VADODARA

Citation:-2014-TIOL-2573-CESTAT-AHM

Brief Facts:-This stay application and appeal have been filed by the appellant with respect to OIO No. 19/Demand/2012 dated 18.01.2013 passed by the Commissioner of Central Excise, Customs & Service Tax, Surat. Under this OIO Adjudicating authority has confirmed a demand of Rs. 4,57,25,70,950/- against the appellant, along with interest and also imposed equivalent penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The provisions of Rule 8(3A) have been invoked for short payment made on account of calculation mistake incurred by the appellant.

Appellant Contentions:-Shri V.K. Jain (Advocate) and Ms. Dimple Gohil (Advocate) appeared on behalf of the appellant. Learned advocate Shri V.K. Jain argued that the demand has been raised for short payment of Rs. 4, 798/- and Rs. 1,360/- (Total Rs. 6,158/-) respectively for the month of March and April, 2011. That vide letter dated 25.07.2011 and 30.09.2011 appellant intimated to the department that due to calculation mistake there was short payment and that the same is paid by them along with interest for late payment. That department did not accept the suo-moto payments made by the appellant and issued a show cause notice dated 24.4.2011 by treating the above short payment as a case of default in payment of duty as per the provisions of Rule 8(3A) of the Central Excise Rules, 2002. It was his case that appellants case is only a short payment of duty and can not be treated as a case of default in payment of duty under Rule 8(3A).
It was his case that there is only a short payment of duty and the same can not be treated as a case of default in payment of duty under Rule 8(3A). It was strongly argued by the learned advocate that default in payment of duty will be only with respect to duty self assessed by an assessee but not paid to the department within stipulated time. Learned advocate made the bench go through table in Para 14 (ii) on page 6 of the OIO dated 18.1.2013 to stress upon the point that during the period of short payment of duty appellant had Crores worth of balance in their Cenvat Credit Account and PLA which was sufficient to take care of the duty short calculated. It was thus strongly contested by the learned advocate that by no stretch of imagination it can be interpreted that there was a default in payment of duty as appellant is paying crores of duty every month. He relied upon the following case laws to support his argument that a simple calculation error can not be considered as a default of Rule 8(3A) when appellant is not aware of the short payments.

1)   Meenakshi Associates vs. CCE 2012-TIOL-587CESTAT-DEL

2)   Alok Enterprises vs. CCE, Mumbai 2014-TIOL-2008-CESTAT-MUM

3)   T.B. Mangharam Foods Private Limited vs. CCE, Indore [2012 (285) ELT 384 (Tri. Del.)]
Learned advocate also made the bench go through Rule 8(3A) of the Central Excise Rules, 2002 and emphasized that this Rule does not talk of duty payable but talk of duty which should mean duty as assessed by an assessee. It was his case that there was no default in the payment of duty as assessed by appellant. That duty short paid due to a calculation error was only to the extent of Rs. 6,158/and can not be considered as default in payment when the same was made good by self detection and there was sufficient balance in appellants PLA and Cenvat Credit Account. That the same was promptly intimated to the department after payments made. It was also his case that as per Gujarat High Court judgment in the case of Baman & Berry Bearing Private Limited vs. UOI [2002 (105) ECR 288 Gujarat] that law does not care for trifles [Lex Non Curat de minimis]. That as per CBEC circular File No. 206/01/96CX6 dated 30.9.1996 (Para 6) the field formations are required to scrutinize the returns even after introduction of self assessment scheme and take action under Section 11A of the Act with interest to the duty short paid by an assessee.

Respondent Contentions:- Shri Raju (Commissioner) and Shri J. Nagori (Additional Commissioner) appeared as Authorised Representatives on behalf of Revenue. It was their case that the word duty mentioned in Rule 8(3A) means duty leviable as per Rule 2(e), Rule 4 and Rule 6 of the Central Excise Rules 2002. That any short payment of duty on the part of an assessee will be a case of default as per Rule 8(3A) and accordingly, appellant was required to pay duty in cash till the default was rectified. Learned AR strongly relied upon the case law of Godrej Hershey Limited vs. CCE, Bhopal [2011 (263) ELT 663 (Tri. Del.)] = 2011-TIOL-65-CESTAT-DEL. Learned AR also made the bench go through Para 19, 21,22 and 24 of this order to argue that even miscalculation in payment of duty will amount to default. That as the facts of the present case are similar to the facts of the case involved in Godrej Hushey Limited vs. CCE, Bhopal (supra), therefore, demands have been correctly confirmed against the appellant.

Reasoning of judgment:-Heard both sides and perused the case records. The issue involved in the present proceedings is whether due to a calculation error, amounting to a short payment of Rs. 6,158/, appellant can be slapped with a demand of approximately Rs. 457 Crores, along with interest and an equivalent amount of penalty. According to Revenue short payment of Rs. 6,158/is a case of default under Rule 8(3A) as upheld by CESTAT Delhi in the case of Godrej Hershey Limited vs. CCE, Bhopal (supra).
Rule 8(3A) of the Central Excise Rules, 2002 is relevant and is reproduced below:
RULE 8. Manner of Payment
[(3A) 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 the assessee pays the outstanding amount including interest thereon; and in the even 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 the case of appellant that a calculation error of a minor amount can not be termed as a default of Rule 8(3A). CBEC Circular F.No. 206/01/96CX6 dated 30.9.1996 is relied upon by the appellant to emphasize that even after introduction of self assessment scheme field formations have the responsibility to check arithmetic accuracy of duty paid. Para 6 of this circular is relevant and is reproduced below
6. RT12 Return/Quarterly?6. Return should be scrutinised by the Range Supdt. With reference to eligibility of inputs, arithmetical accuracy of the duty paid and rate of duty etc., they will also continue to deface the documents submitted by the assessees on which they have availed the credit. Whereon scrutiny it is noticed that the duty is short paid, not paid or escaped the Self Assessment, necessary action should be taken to recover the duty in accordance with Section 11A of the Act. Similarly in case of excess payment by the assessee, they can file the refund claim. The relevant date for such refund should be continued to be computed as provided in Section 11B of the Act.
From the above legal provisions it is observed that field formations are required to take recovery action under Section 11A of the Central Excise Act, 1944 if there is any calculation error and rate of duty difference. If a short calculation of duty is attributed to be a default of Rule 8(3A) of the Central Excise Rules, 2002 then every short payment paid on being pointed out by department, or suo-moto by an assessee, will be a case of default. At the same time any valuation/ classification dispute detected by department and upheld by any appellate authority up to Supreme Court will also be a case of default of Rule 8(3A). Such a situation may arise after years of litigation also and may lead to a position of chaos rather than harmony and certainty in taxation matters. We are, therefore, of the opinion that default in payment of duty mentioned in Rule 8 (3A) will be non payment of duty as assessed by an assessee. However, there could be situations where an assessee deliberately calculates less duty liability in order to avoid penal provisions. The default with respect to Rule 8(3A) should be a deliberate act in total defiance of the law and not for minor calculation errors. For such minor calculation errors the provisions of Section 11A of the Central Excise Act, 1944 are attracted as per circulars issued by CBEC. In the present case appellant themselves detected short payment and paid the amounts along with interest and intimated the department. Appellant had sufficient balance in its duty payment accounts and is paying crores of duty by issuing thousands of invoices. A minor calculation error can not be categorised as defiance of law and will not amount to a default of Rule 8(3A) as these provisions will be applicable to non payment of duty as self assessed by an assessee. In the case of the appellant the short payment is so small that the judgment of Hon’ble Gujarat High Courts order, in the case of Baman and Berry Bearing Private Limited vs. UOI (supra), will be applicable even if the act of the appellant is considered as default of Rule 8(3A) because law does not care for trifles (Lex non curat de minimis).
Learned AR has placed reliance on the judgment of CESTAT Delhi in the case of Godrej Hershey Limited vs. CCE (supra) wherein it has been held that any omission on the part of an assessee if leads to short payment will be a case of default. We respectfully differ with the views expressed by CESTAT Delhi as this interpretation will lead to chaos and will not be implementable as narrated in Para 4.3 above. In our opinion the default of Rule 8(3A) will take place only for non payment of duty as assessed or by the appellant. It is not the case of Revenue that there is a deliberate less calculation of duty on the part of the appellant. There are also provisions in the Central Excise Act, 1944 and the Finance Act, 1994 that there is no need to issue show cause notice if an assessee pays the tax, along with interest, either on his own detection or after being pointed out by department officer; provided there is no element of fraud, wilful misstatement etc. with intention to evade payment of tax. If the interpretation given by the Revenue is accepted than there will not be a single case where show cause notice will not be required to be issued even after payment of differential duty by an assessee after clearance of goods.
In view of the above observation and under the present facts and circumstances of the case, we are of the considered opinion that appellants case is not a default of Rule 8(3A) of the Central Excise Rules, 2002. Accordingly, appeal filed by the appellant is required to be allowed by setting aside the OIO dated 18.01.2013 passed by the adjudicating authority.

Decision:-Appeal Allowed.

Comment:- The essence of this case is that minor calculation error cannot be categorized as defiance of law and will not amount to a default of Rule 8(3A) as these provisions will be applicable to non-payment of duty as self assessed by an assessee. Hence, as per Rule 8(3A) if assessee has made short payment of duty due to calculation mistake, the same cannot be treated as default of duty under this rule.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2014-15/2485

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