Whether assessee is entitled to utilize credit for payment of duty during the default period ?

PJ/Case law/2014-15/2269

Case;- M/s SRI SIVASAKTHI AUTO ANCILLARIES PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE, CHENNAI-IV

Citation:- 2014-TIOL-982-CESTAT-MAD

Brief facts:- The applicant was a Central Excise assessee, who defaulted in payment of their Central Excise dues, as declared by them for the month of July, 2008. However, the amount defaulted was paid in Sept.'08 and the interest on defaulted amount was paid in Mar.09' only. Thus, as per the provisions of Rule 8(3A) of the central Excise Rules, 2002 the appellant was in default from Aug.'08 to Mar.'09. As per the said Rule, the assessee was not entitled to utilize Cenvat credit for payment of Excise duty during the period under default. Never the less, the applicant continued to utilize Cenvat credit for payment of duties. Therefore, Revenue issued a Show Cause Notice for recovering the duty not paid in cash, but paid through Cenvat credit for the reason such payment through Cenvat credit could not be considered to be a legal discharge of duty payable. After adjudication an amount of Rs.14,18,184/- was confirmed against the applicant along with interest and penalty. Hence, the present appeal is filed before the Tribunal.

Appellant’s contentions:- Arguing for the applicant, the learned Counsel for the applicant submitted that they had made delayed payment as their company was a loss making one. Besides, the delayed payments were made good by paying the defaulted amount along with interest, which was good enough. Once they came out of the defaulted period, such payment became proper, according to him. Hence, at worst there can be interest liability on account of wrong utilization of Cenvat credit. In this regard, he relied on the following decisions:-
(i) Solar Chemferts Pvt. Ltd Vs Commissioner of Central Excise, Thane-I reported in 2012 (276) E.L.T. 273 (Tri-Mumbai) =
2011-TIOL-1968-CESTAT-MUM
(ii)F.S. Engineers Vs Commissioner of Central Excise, Ahmadabad-II reported in 2013(293) E.L.T.61 (Tri-Ahmd) = 2013-TIOL-
880-CESTAT-AHM
(iii) Baba Viswakarma Engg. Co. (P) LTD Vs CCE-2012 (278) E.L.T. 68 (Tri. - Del) = 2011-TIOL-2010-CESTAT-DEL
Therefore, he submitted that the appeal may be admitted without any pre-deposit.

Respondent’s contentions:- Opposing the prayer the learned Authorised Representative for the Revenue submitted that statue prescribes that duty had to be paid in cash when an assessee was in default as Per Rule 8(3A). As such, the duty demand had to be paid in cash only and if the same was paid in Cenvat credit, it could not be considered as payment of duty. He said that these were clandestine clearance without payment of duty. In this, regard he relied on several decisions.

Reasoning of judgment:- Considered arguments on both sides. The Bench did not agree with the argument that the clearances made by the applicant were clandestine removals because the clearances were reported in the returns filed by application. The applicant was liable to pay duty in cash, when they were in default. Any payment made through Cenvat credit can be taken as proper discharge only when no bar as per Rule 8(3A) of Central Excise Rules, 2002 was operating. If payment was made through credit after they came out of defaulting period it would be acceptable as proper discharge. The payment prior to coming out of default could not be refused for the reason that it was paid earlier but for the fact that interest had to be paid. Therefore, we order the applicant to calculate interest on clearances during the default period till March 2009 to be calculated for each clearance from the date of clearance to the end of defaulting period for the payment made through Cenvat and deposit such amount as pre-deposit for admission of the appeal within a period of six weeks.
Subject to such deposit there shall be stay on collection of balance dues arising from the impugned order during the pendency of the appeal.

Decision:- Pre deposit ordered.

Comment:- The analogy drawn from the case is that if the payment of excise duty is made through credit after assessee comes out of defaulting period it is acceptable as proper discharge. The payment through CENVAT credit prior to coming out of default cannot be accepted as proper discharge of duty liability and so interest had to be paid on each clearance from the date of clearance to the end of defaulting period for the payment made through Cenvat.

Prepared by: Ranu Dhoot

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PJ/Case law/2014-15/2269

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