Whether discharge of arrears of duty liability by using Cenvat credit proper?

PJ/Case Law /2016-17/3255

Case:- STEEL TUBES OF INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation:- 2016 (337) E.L.T. 306 (Tri. - Del.)

Brief Facts:-This is an appeal against the order dated 28-3-2007 of Commissioner of Central Excise, Indore. The appellants are engaged in the manufacture of steel tubes liable to Central Excise duty. They were to discharge Central Excise duty on the goods cleared during a month by 5th of the following month. During the period, April, 2005 to July, 2005 they have not paid the duty on due dates and defaulted with the payment of a total amount of Rs. 79,10,841/-, out of which, they have deposited Rs. 28,64,774/- through cash deposit in current account and remaining of Rs. 50,46,067/- through debiting Cenvat credit account. Proceedings were initiated against the appellant to recover this amount of Rs. 50,46,067/- by cash, as the debit made in Cenvat credit account is relatable to the credits accrued after the impugned period of default in duty payment. After due process, the Original Authority confirmed the demand to be paid in cash and imposed penalty of Rs. 1,00,000/- on the appellant. He also ordered that on payment of this amount by cash, the amount already debited in Cenvat credit account will be restored to the appellant.

Appellants Contention:-Ld. Counsel for the appellant submits that the proceedings against them were not sustainable. Admittedly, they have defaulted in payment of Central Excise duty on a monthly basis during the period April, 2005 to July, 2005. However, they have fully paid the defaulted amount on 26-7-2005, 12-8-2005 and 5-10-2005 by debit entries in their Cenvat credit account. The provisions invoked by the Revenue viz. Rule 3(4) of the Cenvat Credit Rules, 2004 is not applicable in this case as they were paying a defaulted amount which is an arrear to the Government. Their payment is to discharge the duty liability which they have not done in time. The Counsel further drew attention to the order of the Original Authority to the effect that on payment of this amount by cash the Cenvat credit debit of equivalent amount will be restored to them. This clearly confirms that the duty which was defaulted has been correctly paid by them. The payment using Cenvat credit is permissible in the present case as the same is not used in the normal course of payment. In other words, the amount of arrears due to the Government is paid using partly the credit amount available in their accounts. The credits have been taken legally and there is no allegation about irregular credit, etc.

Respondents Contention:- Ld. AR, on the other hand, reiterates the findings of the Original Authority and states that the credit accrued during the latter period cannot be used to discharge duty of the earlier period.

Reasoning Of Judgement:-On hearing both sides and perusal of the case records it is found that during the impugned period the appellants have not discharged the Central Excise duty in time and defaulted. The duty liability for the impugned period was not disputed. The appellants only pleaded that they could not discharge the duty in time because of financial constraints. Later, they have paid the full amount partly by cash and partly by credit. The payment by credit which accrued after the impugned period was disputed by the Revenue. In this connection, it is found that the Board vide Circular dated 15-12-2003 clarified that the amount of duty outstanding shall be treated as recoverable arrears of revenue and all permissible action under the law including action under Section 11 of the Central Excise Act, 1944 should be taken. Considering this amount, which was liable to be paid, but not paid in time, was later paid by the appellant using partly the credit available in their accounts. In such situation, there is no reason for ordering payment of such amount by cash only and taking re-credit of the debited amount. The assessee’s right to use Cenvat credit to discharge the Central Excise duty even during the defaulted period was examined and decided by the Hon’ble High Court of Madras in the case of Malladi Drugs & Pharmaceuticals Ltd. reported in 2015-TIOL-1262-HC-MAD-CX = 2015 (323) E.L.T. 489 (Mad.). The Hon’ble High Court observed that right to pay the duty by using Cenvat credit that on accrued amount cannot be denied unless it is a case of illegality or irregular credit.
Considering the above position, no justification is found for the Revenue to insist on payment of all the dues for the payment of all the defaulted amount by cash only when the appellants have accrued Cenvat credit available in their accounts.

Decision:-Appeal allowed

Comment:- The crux of the case is that the Cenvat credit accrued after defaulted period is permissible to be utilized for payment of defaulted duty which is treatable as Revenue arrears as per C.B.E. & C. Circular dated 15-12-2003 . Therefore, appellant is not required to pay defaulted amount in cash, which already stands debited from Cenvat account.

Prepared By:- Ritika Mehta

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PJ/Case Law /2016-17/3255

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