Whether Cenvat credit can be utilised for discharging differential duty liability during the period of forfeiture under Rule 8(4)?

PJ/Case Law/2013-14/1687

Case: CCE, MADURAIVsM/s KALEESWARAR MILLS

Citation: 2013-TIOL-1209-CESTAT-MAD

Brief facts: Thematerial facts of this case are that Revenue had filed the appeal against the impugned order for imposition of penalty as proposed in the show-cause notice. The assessee filed cross-objection against the demand of duty. The assessee also filed application for condonation of delay of filing the cross-objection.
The learned AR submitted that the COD application filed by the assessee for delay of filing the cross-objection is liable to be dismissed. He also said that as revealed from the cross-objection that the assessee received the order on 20.3.2004 and cross-objection was filed on 11.4.2011. Thus there is a long delay, which cannot be condoned.
On the other hand, the learned counsel for the assessee submitted that the respondent/assessee is a unit of National Textile Corporation (TN & P) Ltd., a Government of India undertaking. They have field cross-objection by letter form on 19.4.2004, which is within the stipulated period under Section 35B of the Central Excise Act, 1944. He further submits that in order to avoid any legal complicity, they filed the cross objection on 11.04.2011 in proper format. He also submitted that there is no delay in filing of the cross-objection and the application for condonation of delay was filed to avoid any legal infringement.
After considering the submission of both sides on the condonation of delay application, it was found from the record that the Revenue filed this appeal on 6.2.2004. Thereafter, by letter dated 15.4.2004 the assessee filed the cross-objection on 19.4.2004. The prayer in the said letter was for setting aside the demand. In the condonation of delay application, the assessee stated that immediately after the receipt of the notice of the appeal filed by the Revenue, they filed their cross-objection by their letter dated 15.4.2004 praying to set aside the demand of differential duty with interest.
We find that the assessee filed the cross-objection in a letter form within the stipulated period. Subsequently, they filed the cross-objection in proper form. As the cross-objection was originally filed within the stipulated period, the COD application filed by the assessee is dismissed as infructuous.
It was also found that as the assessee aggrieved with the impugned order on merit, so it was appropriate to take up the cross-objection filed by the respondent/assessee. It had been alleged that the assessee had utilized the CENVAT credit for discharging the differential duty liability during the period of forfeiture under Rule 8(4) of the Central Excise Rules. The Commissioner ordered to pay the said duty amount along with interest in PLA/cash and they shall be entitled to avail the credit of the amount paid in CENVAT credit. He dropped all further proceedings proposed in the show-cause notice.

Appellant’s contention: The learned AR reiterated the finding of the Commissioner. He submitted that on plain reading the Rule 8(4), the assessee is liable to pay duty in PLA/cash during the forfeiture period. He submits that admittedly the assessee failed to discharge the fortnightly payment of duty within the stipulated period under Rule 8 of the Central Excise Rules, 2001/2002 and therefore penal provision is liable to be invoked. He also submitted that the assessee deliberately reduced the value at the time of clearance from their factory gate, thus it is a case of evasion of duty and penalty under Rule 173Q of the erstwhile Rules, 1944 and Rule 25 of the Central Excise Rules, 2001/2002 is liable to be imposed. He further submitted that Rule 173Q provided that if a manufacturer removes any excisable goods in contravention of any of the provisions of these Rules, then he shall be liable for penalty. He relied upon the decision of the Hon'ble Supreme Court in the case of Zunjarrao Bhikaji Nagarkar Vs. Union of India - 1999 (112) ELT 772 (SC).

Respondent’s contention: The learned counsel on behalf of the assessee submitted that the Larger Bench of the Tribunal in the case of Noble Drugs Vs. CCE - 2007 (215) ELT 500 (Tri. - LB) =(2007-TIOL-1097-CESTAT-MUM-LB)held that during the period of forfeiture facility of payment of duty on fortnightly basis, an assessee can discharge duty liability either out of PLA or by utilizing CENVAT credit and failure on his part to do so would not attract interest and penalty. The Larger Bench of the Tribunal also followed the decision of the Hon'ble Kerala High Court in the case of Thanikudam Bhagawati Mills Ltd. Vs. Commissioner - Central Excise Appeal No.22 of 2005, dated 26.10.2005. The Larger Bench decision was followed by the Tribunal consistently in various cases and also in the case ofPlastic Flexibles Ltd. Vs. CCE - 2009 (236) ELT 692 = (2008-TIOL-2729-CESTAT-MUM). The Hon'ble Bombay High Court in Lloyds Steel Industries Ltd. Vs. Union of India 2009 (246) ELT 114 (Bom.) following the decision of the Larger Bench of the Tribunal in the case of Noble Drugs (supra) and the decision of the Hon'ble Kerala High Court in the case of Thanikudam Bhagawati Mills (supra) held that payment from CENVAT account during forfeiture on fortnightly payment facility is legal and proper. The Tribunal in the case of Heavy Engineering Corporation Ltd. Vs. CCE - 2008 (230) ELT 179 following the decision of the Hon'ble Bombay High Court allowed the appeal of the assessee on the identical issue. The learned Advocate submits that the impugned order in so far as the payment of duty and interest in PLA/cash may be set aside and the appeal of the Revenue is liable to be dismissed.

Reasoning of judgement: After hearing both sides and on perusal of records, the bench found force in the submission of the learned Advocate of the assessee. The respondent/assessee was one of the units of National Textile Corporation (TN & P) Ltd. a Government of India undertaking. It was alleged that the assessee paid duty in the month of August 2001 from CENVAT account instead of PLA/cash during the period of forfeiture under Rule 8 of Central Excise (No. 2) Rules, 2001. They found that the issue is no more res integra. In the case of Noble Drugs Ltd. (supra) it was referred to the Larger Bench of the Tribunal as to whether an assessee during the period of forfeiture facility for payment of duty on fortnightly basis, is required to pay duty out of the PLA and whether failure on his part to do so would attract interest and penal provision or not. The reference was answered as under:

"It cannot be disputed that the provisions of Rule 8(4) are pari material with Rule 173G(1)(e) and the non-obstantive clause was introduced by insertion of sub-rule 3A in Rule 8 of the Central Excise Rules, 2002, only w.e.f. 31.3.2005, while the period in dispute in the present case is prior to that date. The ratio of the Kerala High Court's judgment is, therefore, applicable on all fours to the present case and following the same, we hold that during the period of forfeiture of the facility of payment of duty on fortnightly basis, an assessee can discharge duty liability either out of PLA or by utilizing CENVAT credit and failure on his part to do so would not attract interest and penalty, and answer the reference in the negative".
In view of the decision of the Larger Bench of the Tribunal in the case of Noble Drugs (supra), they modified the impugned order insofar as the recovery of duty and interest and shall be paid in PLA/cash are set aside. Accordingly, the appeal filed by the Revenue is dismissed and the cross-objection filed by the respondent/assessee is allowed.

Decision:Revenue appeal rejected.

Comment: The essence of this case is that the assessee is entitled to utilise cenvat credit balance during the period of forfeiture under Rule 8(4) of the Central Excise Rules, 2002.

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PJ/Case Law/2013-14/1687

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