Whether duty demand to be deposited in cash proper when the credit was utilized during the defaulting period under Rule 8 (3A)?

PJ/Case Law/2013-14/1856

Case:- COMPOSITE TECHNOLOGIES PVT. LTD. Vs COMMR. OF C. EX., BANGALORE

Citation:- 2013 (290) E.L.T. 414 (Tri. - Bang.)

Brief Facts:-The appellant in this case is engaged in the manufacture of excisable goods. During the material period, they were liable to pay duty in terms of Rule 8 of the Central Excise Rules, 2002. In respect of clearances made in every calendar month, they should have paid duty by the fifth day of the next month (due date) and, in any case, within 30 days (grace period) thereafter, with interest. But, for April, May and June 2008, the appellant did not pay duty in this manner. They paid duty from PLA for these three months on 4-8-2008 with interest, the delay of payment beyond the grace period being 92 days, 61 days and 30 days respectively.

The appellant hada further liability under Rule 8(3A). Accordingly, the appellant, in the month of July 2008, should have paid duty on each clearance at the time of such clearance and, that too, without utilization of Cenvat credit. In other words, the payment of duty for July 2008 ought to have been consignment-wise and from the account current (PLA). The appellant, however, utilized Cenvat credit to the extent of Rs. 67,619/- for payment of duty of Rs. 1,40,840/- for the month of July 2008, the differential amount having been made from PLA. The payment for the entire month, partly from PLA (Rs. 74,448/-) and partly from Cenvat account (67,619/-) was made on 23-8-2008. The interest thereon was also paid on that date. In adjudication of the relevant show cause notice, the original authority confirmed against the assessee demand of duty of Rs. 67,619/- under Section 11A of the Central Excise Act, demanded interest thereon under Section 11AB of the Act and imposed a penalty of Rs. 2000/- on the assessee under Rule 25 of the Central Excise Rules. In an appeal filed by the assessee, the Commissioner (Appeals) upheld the order-in-original. Hence the present appeal of the assessee

Appellant’s Contentions:-The appellant’s only grievance was against the demand of duty of Rs. 67,619/-. Though, in the memo of appeal, there was a formal challenge to the aforesaid penalty, the same was not being pressed. With regard to the demand of duty, it was submitted that, as the appellant had cleared all the duty dues with interest prior to 5th of August 2008 for the period April to June 2008, their case was covered by Rule 8(3) and not Rule 8(3A). In other words, the argument was that the appellant was entitled to utilize Cenvat credit for payment of duty for the month of July 2008. In terms of Rule 8(3A), the appellant could at best be required to pay the aforesaid amount of duty from PLA and claim re-credit of equal amount in Cenvat account. In this connection, reliance was placed on the Tribunal’s decision in SCT Ltd. v. CCE, Meerut [2006 (202)E.L.T.814 (Tri.-Del.)]and Nehru Steels v.CCE, Kanpur [2008 (231)E.L.T.349 (Tri.-Del.)].The learned counsel interpreted Rule 8(3A) in the same manner as done by this Tribunal in the case of Solar Chemferts Pvt. Ltd. v.CCE, Thane-I [2012 (276)E.L.T.273 (Tri.-Mum.)].Finally it is argued that, in the circumstances of this case, the impugned demand of duty is liable to be set aside on equitable considerations.

Respondent’s Contentions:- The respondent submitted that, by not paying duty consignment-wise in July 2008 and by utilizing Cenvat credit for the payment of duty for the said month, the assessee attracted Section 11A of the Central Excise Act inasmuch as the goods on which duty was paid from Cenvat account should be deemed to have been cleared without payment of duty. It was further submitted that, sub-rule (3A) being a specific provision covering the facts of this case, the reliance placed by the appellant on sub-rule (3) was inappropriate. Claiming support from Precision Fasteners Ltd. v. CCE [2011 (268)E.L.T.163 (Guj.)],Vidushi Wires Pvt. Ltd. v. UOI [2003 (156)E.L.T.168 (Bom.)], Godrej Hershey Ltd. v. CCE, Bhopal [2011 (263)E.L.T.663 (Tri.-Del.)]etc., the learned Deputy Commissioner (AR) submitted that Rule 8(3A) is a mandatory provision which requires to be given effect to on the facts of the present case.

Reasoning of judgment:- The Hon’ble Judge claimed that there was no gain saying that Rule 8(3A) being a special provision should be made applicable to the facts of the present case in preference to Rule 8(3). It was not in dispute that, for the period April to June 2008, the assessee defaulted payments of duty beyond the grace period. The duty for the said period was paid with interest on 4-8-2008. However, the assessee continued to be a defaulter for purposes of Rule 8(3A) and consequently became liable to pay duty on each clearance in July 2008, from the account current, without utilizing Cenvat credit. However Cenvat credit was utilized to the extent of Rs. 67,619/- for the entire month of July 2008. This was done on 23-8-2008. The original authority held this payment to be delayed by 18 days beyond 5-8-2008. The original authority treated 5-8-2008 as the due date for the assessee to pay duty for the month of July 2008, oblivious of the assessee’s liability to pay duty on each clearance on the date of such clearance in the month of July 2008. This grave error committed by the original authority was overlooked by the Department. In fact, even the show cause notice did not pay attention to assessee’s liability to pay duty in the aforesaid manner in July 2008. Therefore, the Department was not in a position to repair the damage. Be that as it may, the assessee (appellant) could not escape the liability to pay duty exclusively from PLA for the month of July 2008. The Department’s error was not a mitigating factor for the assessee. It was not in dispute that duty of Rs. 67,619/- was paid by them from Cenvat account for the month of July 2008. The goods on which the duty was so paid should be deemed to have been cleared without payment of duty as per Rule 8(3A). If that be so, the demand confirmed against the assessee under Section 11A cannot be resisted by them. However, they have no liability to pay interest under Section 11AB of the Act inasmuch as interest on equal amount of Cenvat credit was paid by them on 23-8-2008.

Regarding the Cenvat credit utilized by the assessee on the principle of restitution, the assessee was required to pay the above duty from PLA, and be restored to a position of not having utilized the credit at all. In the instant case, the Department, having themselves committed a grave error in applying Rule 8(3A) to the assessee’s case, may not justifiably oppose the application of this equitable principle.

Hence, the demand of duty confirmed against the appellant was upheld, but they were allowed to take credit of equivalent amount in their Cenvat account on the principle of restitution.

Decision:- The appeal was dismissed.

Comment:- The analogy drawn from this case is that there is a common practice of the department to demand duty to be paid in cash if the cenvat credit has been utilized by the assessee during the period of default under Rule 8(3A) but practically this is a futile exercise as the duty debited vide cenvat credit account is available to the assessee as re-credit on payment of duty in cash.

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PJ/Case Law/2013-14/1856

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