Whether credit can be utilized during default period under Rule 8(3A)?

PJ/Case Law/2014-15/2385

Case:- PARAMOUNT PRINT PACKAGING Vs COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:-2014-TIOL-1788-CESTAT-MUM

Brief facts:- The adjudicating authority had confirmed a duty demand of Rs. 1,66,53,704/- and an amount of Rs. 74,45,393/- against the appellant, M/s. Paramount Print Packaging under the provisions of Rule 8 (4) of the Central Excise Rules, 2002 read with Section 11 of Central Excise Act, 1944. In this case Appellant had defaulted in payment of excise duty for the month of April 2012. This default continued upto February, 2013 and during the impugned period the appellant paid a sum of Rs. 1,14,67,968/-. They also availed Cenvat Credit of Rs. 74,45,393/- for payment of duty on clearance of the goods during the said period. However, the adjudicating authority while confirming the demand did not considered the amount of Rs. 1.14 crore (approximately) paid by the appellant and considered only Rs.77,20,588/-. Aggrieved of the same, the appellant filed appeal.

Appellant’s contention:- The learned Counsel for the appellant submitted that the appellant had defaulted in payment of excise duty for the month of April 2012. This default continued upto February, 2013 and during the impugned period the appellant paid a sum of Rs. 1,14,67,968/-. They also availed Cenvat Credit of Rs. 74,45,393/- for payment of duty on clearance of the goods during the said period. However, the adjudicating authority while confirming the demand did not considered the amount of Rs. 1.14 crore (approximately) paid by the appellant and considered only Rs.77,20,588/-. It was further contended that denial of Cenvat Credit of Rs. 74,45,393/- under Cenvat Credit Rules, 2002 is incorrect in law, in view of the decision of the Hon'ble High Court in the case of Lloyds Steel Industries Ltd. Vs. UOI - 2004 (183) ELT 351 (Bom.) = 2003-TIOL-145-HC-MUM-CX. According to the learned counsel, he was liable to pay sum of Rs. 51,95,736/- only towards the default in payment of excise duty, which he assured that would be made by the appellant if sufficient time was granted.

Respondent’s contention:- The learned Additional Commissioner (AR) appearing for the revenue on the other hand submitted that Rule 8(3A) of the Central Excise Rules, 2002 very categorically and clearly states that "If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon; and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow."In view of the clear provisions, the appellant was required to discharge the defaulted payment in cash and during the default period, the utilisation of Cenvat Credit was not permitted. He also relied on the decision of the Hon'ble High Court of Madras in the case of Unirols Airtex Vs. CCE, Coimbatore - 2013 (296) ELOT 449 (Mad) = 2013-TIOL-684-HC-MAD-CXwherein it was held that Cenvat Credit cannot be used as a matter of right for payment of duty of excise in case period under Rule 8(3A) of Central Excise Rules, 2002 and the entire outstanding amount including interest was paid. Similarly, the Hon'ble High Court of Karnataka in the case of Manjunatha Industries Vs. CCE, Bangalore = 2013-TIOL-285-HC-KAR-CXheld that incase of default, prohibition under Rule 8(3A) of Central Excise Rules, 2002 from utilizing Cenvat Credit account was not with reference to arrears but the entire credit lying in the account and since credit was unavailable, utilizing the same for payment of duty was an exercise in nullity and could not be recognized as payment towards duty. In view of these decisions, the confirmation of duty in the impugned order is sustainable in law and accordingly, the appellant be put to terms.

Reasoning of judgment:- After carefully considering the submissions made by both by both sides it was held that The provisions of sub-rule 8 (3A) was introduced to curb the tendency on the part of assessees in defaulting in payment of duty and the language used in the said Rule, especially the use of non-obstante clause makes it absolutely clear that during the period of default, the assessee cannot utilize the credit lying in the Cenvat Credit account for the purpose of payment of excise duty. The decision of the Hon'ble Bombay High Court in the case of Lloyds Steel Industries Ltd had dealt with a different situation prevailing under Rule 4 of the Central Excise Rules, and the language used therein was also different. Therefore, the ratio of the said decision cannot apply in the present case. On the other hand the decision of the Hon'ble High Court of Karnataka in the case of Manjunatha Industries case and the Hon'ble High Court of Madras in Unirols Airtex case were directly on the issue and interprets Rule 8 (3A) by stating that "utilization of Cenvat Credit during default period is an exercise in nullity." Therefore, the claim of the appellant that the reversal of Cenvat Credit of Rs. 74,45,393/- confirmed by the adjudicating authority was not correct in law, prima facie not sustainable. Therefore, the appellant was liable to pay the balance amount of Rs. 1,26,31,129/-. Though the appellant pleaded financial difficulties, except for the averments in this regard, no evidence was made available before them. Therefore, they directed the appellant to make a pre-deposit of Rs. 1,26,31,129/- (subject to verification of amount of Rs. 1,14,67,968/- already paid by the appellant by the Revenue) within a period eight weeks and report compliance by 07/07/2014. On such compliance, the balance of dues adjudged against the appellant, namely, interest and penalty shall stand waived and recovery thereof stayed during the pendency of the appeal.

Decision:- Pre deposit ordered.

Comment:- The gist of this case is that sub-rule 8 (3A) clearly states that during the period of default, the assessee cannot utilize the credit lying in the Cenvat Credit account for the purpose of payment of excise duty. Accordingly, pre-deposit was ordered. There are contradictory decisions on the issue of credit utilisation during the default period under Rule 8(3A) but the dispute has been ended with the amendment in Rule 8(3A) with the Budget 2014 whereby the provision as regards non-utilisation of cenvat credit during the defaulting period has been dispensed with. This will probably reduce the litigation hence forth.

Prepared by:- Prayushi Jain

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PJ/Case Law/2014-15/2385

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