Whether default under Rule 8(3A) attracts penalty under Rule 25?

PJ/Case Law/2013-14/1836

Case:-COMPACT TOOLS Vs COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:-2013 (290) E.L.T. 412 (Tri. - Del.)

Brief facts:-Material facts of this case are the appellant during April 2007, May 2007 and June 2007 failed to discharge the duty liability for each of this month by the due date in terms of the provisions of Rule 8 of the Central Excise Rules, 2002. The duty liability for these three months was discharged along with interest during the period from January 2008 to March 2008. The Department contended that the appellant failed to discharge the monthly duty liability by the due date and the period of delay was beyond 30 days from the due date, the provisions of Rule 8(3A) would be applicable and accordingly during that period, the appellant would forfeit the facility to pay duty on monthly basis and would be required to pay duty consignment-wise and through PLA only without utilising the Cenvat credit.

Since, the appellant during the period of forfeiture had not paid duty consignment-wise and through PLA, a show cause notice was issued to them for payment of duty during the period of forfeiture through PLA and also for imposition of penalty on them on this count under Rule 25 of the Central Excise Rules, 2002 as in terms of the provisions of Rule 8(3A) when during the forfeiture period, the duty is not paid consignment-wise or is not paid through PLA, the goods are deemed to have been cleared without payment of duty and all the consequences of the same would follow. The show cause notice was adjudicated by the Assistant Commissioner vide order-in-original dated 21-5-2009 and by which besides directing the appellant to pay an amount of Rs. 3,33,394/- through PLA, the Assistant Commissioner also imposed penalty of Rs. 1,00,000/- on the appellant under Rule 25. Since, the show cause notice had also alleged that the appellant have not filed the ER-1 return in time and the show cause notice had also proposed the imposition of penalty on this count, another penalty of Rs. 5,000/- was imposed for this contravention under Rule 25 of the Central Excise Rules. This order of the Assistant Commissioner was upheld by the Commissioner (Appeals) vide order-in-appeal dated 11-2-2010 against which this appeal had been filed.

Appellant’s Contention:- The appellant citing the judgment of Hon’ble Bombay High Court in the case of Lloyds Steel Industries Ltd. v. Union of India reported in2009 (246)E.L.T. 114 (Bom.); held that even during the period of forfeiture the appellant would be entitled to use Cenvat credit for payment of Central Excise duty and accordingly during the forfeiture period, even if the appellant had actually cleared the goods on payment of duty through Cenvat credit account, was no contravention of the provisions of Central Excise Rules. The impugned order directing the appellant to pay an amount of Rs. 3,43,708/- once again through PLA and also imposing penalty under Rule 25 is not correct. However, with regard to delay in filing of ER-1 return, there was delay but for this, the penalty of Rs. 5,000/- is not warranted. The impugned order is not correct.

Respondent’s Contention:-The respondent submitted that the judgment of Hon’ble Bombay High Court in the case of Lloyds Steel Industries Ltd, v. Union of India (supra) is not applicable as the Hon’ble Bombay High Court is with regard to the provisions of Rule 173G of the Central Excise Rules, 1944 and not with regard to the provisions of Rule 8(3A) of the Central Excise Rules, 2002, that the provisions of Rule 8(3A) are clear that once the period of delay in discharge of the monthly duty liability exceeds 30 days from the due date, the assessee loses the facility to pay duty on monthly basis and also the facility to utilise the Cenvat credit for payment of duty and he is required to pay duty on consignment-wise and through PLA and that the Rule 8(3A) also specifically provides if during the forfeiture period, the duty is not paid through PLA, but is paid through Cenvat credit, or is not paid consignment-wise, the goods cleared will be deemed to have been cleared without payment of duty and consequences of the same as provided in the Central Excise Rules would follow. Thus, it was held that appellant has been correctly directed to pay the disputed amount through PLA and penalty has been correctly imposed on them under Rule 25 of the Central Excise Rules as there is deemed clearance of the goods without payment of duty.

Reasoning of Judgement:- Hon’ble Judge found that the provisions of Rule 8(3A) in regard of the clearance of the goods during the forfeiture period without payment of duty consignment-wise and through PLA are very clear as this rule provides that when the period of delay in discharge of monthly duty liability by the due date exceeds 30 days from the due date, the assessee loses the facility to pay duty on monthly basis and is required to pay duty on each clearance and that too through PLA without utilising the Cenvat Credit. Rule 8(3A) specifically provides that if during the forfeiture period, the duty is not paid consignment-wise or is paid by utilising Cenvat credit in respect of certain goods cleared, such clearances would be deemed to have been made without payment of duty and all the consequences for the same as prescribed in the Central Excise Rules, would follow. In the case concerned, during forfeiture period, the duty had not been paid through PLA and had been paid through Cenvat credit, the appellant have been correctly directed to pay the same through PLA. Once the duty is paid through PLA, they would be entitled for re-credit of Cenvat credit earlier utilised. Similarly, since during the forfeiture period, the goods were cleared on payment of duty through Cenvat credit account, the same would be deemed to have been cleared without payment of duty and, hence, the provisions of Rule 25 would be attracted. Accordingly, the penalty under Rule 25 has been correctly imposed.

As regards penalty of Rs. 5,000/- under Rule 25 for delay in filing of the ER-1 return, it was concluded that delay in filing of ER-1 return, would attract penalty under Rule 27 not under Rule 25.
Further the penalty of Rs. 1,00,000/ (Rupees One Lakh) under Rule 25 is reduced to Rs. 25,000/- (Rupees Twenty Five Thousand) and penalty for delay in filing of ER-1 return is reduced to Rs. 2,000/- (Rupees Two Thousand). Except for these modifications, the impugned order is upheld.

Decision:-Appeal allowed partly.

Comment:- The analogy drawn from the case is that although when the period of delay in discharge of monthly duty liability by the due date exceeds 30 days from the due date the assessee loses the facility to pay duty on monthly basis and is required to pay duty on each clearance and that too through PLA without utilising the Cenvat Credit. Even then, the re-credit of the duty paid by way of cenvat credit is admissible if the duty is again demanded to be paid from PLA. Moreover, in the case of Saurashtra Cement Case, it has been held that default under Rule 8(3A) would not attract penalty under Rule 25 but will attract the penal provisions of Rule 27.

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PJ/Case Law/2013-14/1836

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