Penalty under Rule 27 can only be imposed for default under Rule 8(3A).

PJ/CASE LAW/13-14/2066

Case:- M/s BACTOLAC FORMULATIONS PVT LTD Vs CCE, HYDERABAD

Citation:-2012-TIOL-970-CESTAT-BANG

Brief Facts:- M/s Bactolac Formulations Pvt. Ltd. (hereinafter referred to as the assessee) are engaged in the manufacture of P or P medicaments. During the material period, they were discharging their duty liability by filing monthly ER-1 returns, in which scheme duty in respect of excisable clearances of a given month had to be paid or on before the 5th day of the next month. The assessee committed default for the months of February and March 2007, for which duty with interest was paid on the 20th and 21st of February 2008. Duty for the month of April 2007, though paid in due time, was not paid entirely from PLA. A major part of this duty was paid from PLA and the balance from CENVAT account, the latter amounting to Rs.75,726/- (BCD+ education cess). The department found irregularity in the mode of payment of duty for the month of April 2007 with reference to Rule 8 (3A), of the Central Excise Rules, 2002 and issued show cause notice dated 1/2/2008 to the assessee demanding the aforesaid amount of Rs.75,726/- under Section 11A(1) of the Central Excise Act read with Rule 14 of the CENVAT Credit Rules 2004, also demanding interest thereon under Section 11AB of the Act, and proposing penalty under Rule 25 of the Central Excise Rules 2002 read with Section 11AC of the Act. These proposals were contested by the party. The original authority adjudicating the dispute confirmed the above demand (with interest) against the assessee and imposed on them penalty equal to duty under Section 11AC read with Rule 2, ibid. In appeal against the Order-In-Original, the learned Commissioner (Appeals) set aside the demand of duty after taking the view that the duty already paid through debits in the CENVAT credit account was acceptable in the absence of timely action by the department to prevent such utilization of credit. However, the learned Commissioner (Appeals) reduced the quantum of penalty imposed under Rule 25 to Rs.50,000/-.

The assessee's appeal is directed against the penalty of Rs.50,000/- while the department's appeal is against the appellate Commissioner's order setting aside the demand of duty and interest thereon. The department, in their appeal, also seeks enhancement of the penalty to the original level.

Reasoning of Judgment:- The Tribunal perusal the records, and considering the submissions of both sides and note that the main issue to be settled is whether an amount being the sum of BCD and education cess paid through debits in the CENVAT credit account for the month of April 2007, is recoverable from the assessee in view of Rule 8(3A) of the Central Excise Rules 2002. When this question came up before this Bench on the previous occasion, the learned counsel for the assessee cited Solar Chemferts Pvt. Ltd. Vs. Commissioner of Central Excise, Thane-I [2012(276) E.L.T 273 (Tri-Mum)] = (2011-TIOL-1968-CESTAT-MUM)in support of the view taken by the lower appellate authority. It was submitted that the issue was squarely covered by the cited decision. While the learned Superintendent (A.R.) relies on Godrej Hershey Ltd. Vs Commissioner of Central Excise, Bhopal [2011 (263) E.L.T. 663 (Tri-Del)] = (2011-TIOL-65- CESTAT-DEL)and submits that this decision supports the department's appeal. As regards Solar Chemferts (supra), he fairly points out that the decision has been accepted by the department. This submission of the learned Superintendent (AR) is supported by the correspondence between him and the Superintendent (Review), Central Excise, Thane-I (Copy produced). In his rejoinder, the appellant submits that the case of Godrej Hershey Ltd. is distinguishable and that the present issue is squarely covered by Solar Chemferts (supra), the facts of which are said to be similar to the facts of the present case.

On a perusal of the decisions cited before Tribunal, The Tribunal finds that the facts of the case of Solar Chemferts (supra) are similar to the facts of the instant case. That decision was rendered by a two-Member Bench of this Tribunal and the same is found in para 8 of the order which reads as follows:

“8. It is to be noted that in Rule 8(3A) there is no ban on taking of credit. There is a ban only on utilization of Cenvat Credit for payment of duty. Now the fact to be noticed is that the adjudication order does not deal with the Cenvat credit utilized during the defaulting period for payment of the duty due on the goods, though such utilization is in contravention of the provisions of Rule 8(3A). If duty as demanded in the adjudication order is also to be paid (in cash) and if thereafter the amount utilized in Cenvat credit is not refunded. There is double payment of duty on the same goods. There is no authority under law for collection of duty twice”

It is the above view that stands accepted by the department and, therefore, the present appeal of the department is liable to be dismissed on merits. The Tribunal's decision in Godrej Hershey case was rendered on a different set of facts. That was a decision principally on the question whether sub-rule (3A) of Rule 8 was attracted in a case of partial default of duty for a given calendar month. In the instant case, the entire amount of duty for the period of default was apparently paid in full from PLA and, for the month of April 2007, the duty was paid within the prescribed time and hence there was no default. The only issue in the present case is whether the assessee should be directed to pay an amount equal to the CENVAT credit utilized by them for payment of duty for the month of April 2007. If they are made to pay so, without being granted refund of the utilized CENVAT credit, the same would amount to double payment of duty. This is precisely what was held by the Tribunal in Solar Chemferts (supra).

However, even as per the decision in Solar Chemferts (supra), the assessee will have penal liability under Rule 27 of the Central Excise Rules 2002. At present, the penalty on them is under Rule 25. In terms of the Hon'ble Gujarat High Court's decision in the case of Commissioner of Central Excise & Customs Vs. Saurashtra Cements Ltd. [2010(260)E.L.T.71 (Guj)], only Rule 27 penalty can be imposed on the assessee in the facts and circumstances of this case. The Hon'ble High Court's view has been followed by this Tribunal in Solar Chemferts case. Following the same view, Tribunal hold that the assessee in the present case is liable to penalty of Rs.5,000/-. Accordingly, the penalty imposed on them is reduced to Rs, 5000/-under Rule 27.

Decision:- The department's appeal is dismissed and the assessee's appeal is disposed of with the modification of penalty.

Comment:- The Crux of this case is that in Rule 8(3A) there is no ban on taking of credit. There is a ban only on utilization of Cenvat Credit for payment of duty. As the present adjudication order does not deal with the Cenvat credit utilized during the defaulting period for payment of the duty due on the goods, though such utilization is in contravention of the provisions of Rule 8(3A), nothing has been ordered with respect to credit utilisation. However, in view of the decision given by the Gujrat High Court in the case of Saurashtra Cements Ltd., penalty imposed of Rs. 50,000/- under Rule 25 was set aside and a penalty of Rs. 5,000/- was imposed under Rule 27.

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PJ/CASE LAW/13-14/2066

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