Utilisation of credit during the defaulting period under Rule 8(3A).

PJ/Case Law/2014-15/2160

Case:- M/s ROHINI CABLES Vs CCE, CHENNAI-II

Citation:- 2014-TIOL-372-CESTAT-MAD

Brief facts:-The applicant defaulted in payment of excise duty during the period September 2008 to November 2008. Though they filed returns showing duty liability they did not pay the amount which they were required to pay and thus had become defaulters. When they were defaulters as per the provisions of Rule 8(3A) of Central Excise Rules, 2002, they were required to pay excise duty only through cash whereas they contravened this rule and continued to pay duty liability partly through cash and partly through CENVAT credit. They made good the entire default by December 2008. Revenue issued show-cause notice demanding payment of that portion of the duty paid through CENVAT credit to be paid through cash along with interest and penalty.

Appellant’s contentions:-Arguing for the applicant, the learned counsel submits that the applicant's factory is presently closed and payment in cash will cause financial hardship. Further, after payment in cash, refund of the CENVAT credit utilized during the defaulting period will become due to them and such credit refunded will not be of any use to them because their factory is closed. He submits that the Tribunal has held that in such cases only interest has to be paid on CENVAT credit utilized for the previous period. He relies on the following decisions of the Tribunal:

(i) Solar Chemferts Pvt. Ltd. Vs. CCE, Thane - I - 2012 (276) ELT 273 = (2011-TIOL-1968-CESTAT-MUM)

(ii) Baba Viswakarma Engg. Co. (P) Ltd. Vs. CCE - 2012 (278) E.L.T. 68 (Tri. - Del.) =(2011-TIOL-2010-CESTAT-DEL)

Respondent’s contentions:-Opposing the prayer the learned AR for Revenue submits that the rule clearly specifies that when the assessee is default, the duty liability has to be paid in PLA only and therefore the order is legally correct and they should be directed the pre-deposit the entire dues. He relies on the following decisions:-

(a) Precision Fasteners Ltd. Vs. CCE - 2011 (268) ELT 163 (Guj.)

(b) Paras Lubricants Ltd. Vs. CCE, Raigad - 2012 (286) ELT 82

(c) Parekh Bright Bars Pvt. Ltd. Vs. CCE - 2010 (249) ELT 298 = (2009-TIOL-2586- CESTAT-MUM)

(d) Composite Technologies P Ltd. Vs. CCE - 2013 (290) ELT 414

(e) Compact Tools Vs. CCE - 2013 (290) ELT 412

(f) Alphine Pharmaceuticals Vs. CCE - 2013 (291) ELT 425 = (2011-TIOL-1757-CESTATBANG)

(g) Akar Ltd. Vs. CCE - 2013 (291) ELT 237

(h) Weldon Cello Plast Ltd. Vs. CCE - 2013 (287) ELT 141

(i) Pee Dee Polymers Vs. CCE - 2012 (278) ELT 647

Reasoning of judgment:- It was found that there are conflicting decisions on this issue. During the defaulting period there is no bar on taking credit. There is bar only on utilization of credit. Whenever a demand is confirmed against an assessee, the assessee can pay the duty liability through cash or CENVAT credit so long as there is no specific prohibition against such payment through CENVAT credit. Such prohibition exists as per Rule 8(3A) only when the assessee is in default. Once they come out of the default by paying the defaulted amounts in cash, they can pay the duty liability using CENVAT credit. The fact that they had used it prior to coming out of default can result in payment of interest on such amount and no demand on such amount again. This is the view expressed in one set of decisions. The other set of decisions on this issue is that since the rule prescribes that the amount has to be paid in PLA it has to be paid in PLA. This matter can be decided at the time of final hearing of the appeal. The decision of the Gujarat High Court in the case of Precision Fashioners is whether defaulted amounts could be paid through credit accumulated after default. At any rate, it is obvious that there will be some interest liability on the applicant since the duty paid through Cenvat credit during defaulting period cannot be taken as proper discharge of duty. This interest amount is not seen quantified. Further a penalty also is payable. Considering this aspect, the applicant is directed to pre-deposit Rs.50,000/- (Rupees fifty thousand only) within four weeks for admission of the appeal and to report compliance on 20.9.2013. Upon such deposit, pre-deposit of the balance dues stands waived and its collection stayed during the pendency of the appeal.

Decision:- Pre-deposit ordered.

Comment:- The analogy of the case is that as there are conflicting decisions regarding the utilisation of credit during the defaulting period, the pre-deposit was ordered of the credit wrongly utilised by the assessee to be paid in cash even when the credit wrongly utilised is available as re-credit. There are one set of decisions that take a liberal view while another set of decisions take a strict view and states strict implementation of the Rule 8 (3A) of the Central Excise Rules. On account of the controversy, the assessee is being the victim.

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