Whether credit utilised during the defaulting period under Rule 8(3A) liable to be paid in cash?

PJ/Case Law/2013-14/2057

Case:- MUALI STEEL PVT. LTD.VERSUS COMMISSIONER OF CENTRAL EXCISE, AURANGABAD

Citation:-2014-TIOL-CESTAT-MUM

Brief Facts:-The appeal and stay application are directed against Order-In-Original No. 17/CEX/COMMR./2013 dated 20/6/2013 passed by the Commissioner of Customs & Central Excise, Aurangabad.

The appellant, M/s. Mauli Steel Pvt. Ltd. is manufacturer of iron and steel products. During the period November to March, 2012 the appellant defaulted in payment of excise duty and default continued for more than 30 days; therefore, as per the provisions of Rule 8(3A) of the Central Excise Rule, 2002, the appellant was required to discharge excise duty liability on the subsequent clearance without utilizing any Cenvat Credit and paying duty through PLA. However, during the impugned period the appellant utilised Cenvat Credit to the extent of Rs. 3,15,54,953/-, therefore a show-cause notice dated 16/5/2012 was issued proposing to deny Cenvat Credit of Rs.3.15 crore availed by the appellant during the impugned period and seeking to recover the same. The said notice was adjudicated upon by the impugned order and a duty demand of Rs.3.15 crore was confirmed and the amount of Rs.77.76 lakhs paid by the appellant was appropriated and the appellant was directed to pay remaining amount of Rs.2.37 crore through PLA and on such payment, the appellant was also allowed to restore the said amount in the Cenvat Credit account. Aggrieved of the same, the appellant is before Tribunal.

Appellant Contentions:-The Ld. Counsel for the appellant made the following submissions.

The appellant was going through a financial crisis and there was acute shortage of liquidity and therefore, the appellant was not in a position to discharge duty liability in cash in respect of the clearances made subsequent to the default. It was in these circumstances, the appellant utilised the Cenvat Credit account for discharge of duty liability. There was no intention at all to evade any Central Excise duty and therefore, this should be a mitigating factor while considering the statutory provisions. He also relies on the decision of this Tribunal in the case of Solar Chemferts Pvt. Ltd. - 2012 (276) ELT 273 (Tri.-Mum) = (2011-TIOL-1968- CESTAT-MUM) wherein it has been held that once the default has been made good, there is no bar in utilizing the Cenvat Credit and therefore, payment of wrongly utilised Cenvat Credit through PLA account is not required. In view of the above, he pleads for grant of stay.

He further submits that there is an error in the computation of duty demand in the show-cause notice. The appellant had made good the default on 26/03/2012; however, while computing the Cenvat Credit availment, the clearances made upto 31/03/2012, had been taken into account and in respect of clearances made between 26/03/2012 and 31/03/2012 there is no bar in the appellant availing the Cenvat Credit if this is taken into account the demand would come down by Rs.15 lakhs approximately and therefore, the correct amount they should have been confirmed by the appellant is only Rs.2.22 crore and not Rs.2.37 crores as confirmed in the impugned order.

Respondent Contentions:-The Ld. Commissioner (AR) appearing for the Revenue on the other hand submits that the Hon'ble High Court of Karnataka in the case of Manjunatha Industries Vs. CCE, Bangalore - (2013- TIOL-285-HC-KAR-CX) held that prohibition under Rule 8(3A) of Central Excise Rules, 2002 from utilizing Cenvat Credit account is not with reference to arrears but to the entire credit lying in the account and the assessee has to pay excise duty through account current for each consignment at the time of removal. Since Cenvat Credit was unavailable, utilizing the same for payment of duty was an exercise in nullity and could not be recognized as payment towards duty. Therefore, he submits that the decision of this Tribunal in the case of Solar Chemferts Pvt. Ltd., (cited supra) no longer holds and therefore, the appellant be put to terms.

Reasoning of Judgment:-We have carefully considered the submissions made by both the sides.

Rule 8 (3A) of the Cenvat Credit Rules, provides that if the appellant had defaulted in payment of duty and if the default continues for more than 30 days, in subsequent clearances of excise goods, duty liability has to be discharged through PLA and amount lying in Cenvat Credit amount cannot be utilised for payment of duty. If the contention of the appellant is accepted, the provisions of 8(3A) of the Central excise Rules, 2002 would be rendered otiose. It is a well settled position of law that statutory provisions should not be interpreted in such a way as to make the provisions a nullity or surplusage. The decision of the Hon'ble High Court of Karnataka in the case of Manjunatha Industries also confirmed this view. Recently The Hon'ble High Court of Madras in the case of Unirols Airtex Vs. CCE, Coimbatore - 2013 (296) ELT 449 (Mad) = (2013-TIOL-684-HC-MAD-CX) has held that if default continues for more than 30 days in payment of excise duty, the provisions of Rule 8 (3A) would operate and the assessee is required to discharge excise duty liability through PLA and no Cenvat Credit can be availed during the default period. These two decisions of the Hon'ble High Court of Karnataka and Madras, completely over rule the decision of this Tribunal in the case of Solar Chemferts Pvt. Ltd. Therefore, we do not find any merits in the submissions of the appellant that the ratio of Solar Chemferts Pvt. Ltd. case should be followed. However, we accept the plea of the appellant in the interim stage that liability should be only Rs.2.22 crore, which can be verified subsequently at the time of final hearing.

In view of the above, we direct the appellant to make a pre-deposit of Rs.2.22 crore through PLA within a period of eight weeks and report compliance on 15/01/2014. On such compliance, the pre-deposit of balance of dues adjudged against the appellant shall stand waived and recovery thereof stayed during the pendency of the appeal. It is also ordered that once the amount of Rs. 2.22 crore is paid in case or through PLA, the appellant would be at liberty to take credit of the same amount in the Cenvat Credit account.

Decision:-Pre-deposit ordered.

Comment:-This case depicts the contrary views expressed with respect to implementation of the provisions of Rule 8(3A) of the Central Excise Rules, 2002. There are one set of decisions that take a lenient approach and view that there is no requirement to pay cash for the credit utilised during the defaulting period as the credit utilised is again admissible as re-credit. The other set of decisions express strict implementation of the Rule 8(3A).

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PJ/Case Law/2013-14/2057

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