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PJ/Case law/2013-14/1916

Penalty under which section imposable for default under Rule 8(3A)?

Case:-M/s KALP CORPORATION Vs COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-III

Citation:-2013-TIOL-1558-CESTAT-AHM

Issue:-Penalty under which section imposable for default under Rule 8(3A)?

Brief Facts:-The appellant herein had debited an amount of Rs.1,62,182/- during the period 1.05.11 to 11.06.11 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 have 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 have utilized the credit in their cenvat account and should have paid the amount through PLA consignment wise. In the case in hand, the appellant has paid an amount of Rs.1,62,182/- through TR-6 challan.

Appellant Contention:-The appellant submits that the interest which has been demanded from the appellant on an amount of Rs.1,62,182/- is incorrect, as the appellant during the relevant period has debited the amount in cenvat account which would indicate that they are unable to utilize the said amount in future. It is his submission that the issue is covered by the decision of the tribunal in the case of Solar Chemferts Pvt. Ltd. - 2012 (276) ELT 273 = (2011-TIOL-1968-CESTAT-MUM). The appellant had paid the amount to the Government of India, the question of interest does not arise. As regards the penalty imposed under Rule 25, it is 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) ELT 71 (Guj.) = (2010-TIOL-889- HC-AHM-CX) has held that imposition of penalty under Rule 25 will 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 is his submission that the amount involved in this case being very small, penalty of Rs.5000/-, is excess, should be reduced proportionately.
Respondent Contention:-Respondent reiterates the findings of the lower authorities.

Reasoning of Judgment:-The issue to be decided in the case in hand is whether the appellant is required to discharge the interest on the said amount of Rs.1,62,182/- and also whether the appellant is required to be penalized under Rule 25 of the Central Excise Rules, 2002 and Rule 27 of the Central Excise Rules, 2002. As regards the interest issue, there is 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 has been discharged by the appellant by utilizing the Cenvat credit and hence government was for all practical purposes was not deprived of the duty. The said procedural infraction of paying the amount through cenvat account has been made good by the appellant subsequently on being pointed out, through TR- 6 challan. In the argument of the ld. consultant that the decision in the case of Solar Chemferts Pvt. Ltd. (supra) on the issue is in favour of the assessee, we reproduce 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 and 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. Then 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 paid 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, are regarding the non payment of central excise duty on the goods cleared by an assessee while in the case in hand there is no dispute as to the discharge of duty liability from cenvat account, although barred from doing so. 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 is not attracted. In view of this, the penalty imposed on the assessee under Rule 25 of the Central Excise Rules, 2002 is liable to be set aside. As regards the penalty imposed under Rule 27 of the Central Excise Rules, 2002, the appellant has 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, it is found that both the lower authorities are correct in imposing Rs.5000/- on the appellant under Rule 27 of the Central Excise Rules, 2002. The appeal filed by the appellant challenging or such imposition of penalty is devoid of merits, and is rejected.

Decision:-Appeal disposed of.

Comment:-The substance of this case is that for default under Rule 8(3A), penalty is not imposable under Rule 25 but under Rule 27 as there is technically no loss to the revenue and there is no short payment rather it is procedural lapse in not following the procedure prescribed in the Central Excise Rules. However, interest is payable for the default committed. 

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