Whether interim relief available in case where Tribunal ordered pre-deposit of credit utilised in cash for default under Rule 8(3A)?

PJ/Case Law/2013-14/2086

Case:-M/s MANJUNATHA INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE

Citation:-2013-TIOL-285-HC-KAR-CX

Brief Facts:-Petitioner, a holder of Central Excise Registration Certificate under Central Excise Act, 1944 manufactures machines for cleaning, sorting or grading seed, etc. being excisable goods falling under the First schedule to the Central Excise Tariff Act, 1985, enjoying the benefit of Cenvat Credit under Cenvat Credit Rules 2004.
Petitioner, when issued with a show cause notice dated 4.1.2012, Annexure-A alleging default in payment of Central excise duty during the period from December 2010 to May 2011 requiring the payment of excise duty on each consignment in cash, without utilizing Cenvat Credit until payment of outstanding amount together with interest. It was further alleged that Rs.1,66,422/- being the duty payable for the month of Oct. 2010, was not paid by the 5^th of November 2010, but paid on 5.1.2011 which is beyond the period of 30 days, in violation of Rule 8 and sub-Rule (3A) of the Central Excise Rules, 2002. For the month of November 2010, the duty payable was Rs.56,540/- by 5th December 2010, but short paid Rs.33,788/- on 5.1.2011. It is further alleged that petitioner was required to pay the defaulted amount together with interest within 30 days from the due date of payment of duty in PLA (Personal Ledger Account) for the clearances effected during December 2010 and subsequent defaulted duty amount without utilizing the Cenvat Credit for the payment of duty. In addition, it was alleged that the petitioner continued to commit default in the payment of duty for the months of December 2010 (Rs.8,78,720/-), February 2011 (Rs.1,80,002), March 2011 (Rs.2,80,649/-), April 2011 (Rs.4,28,906/-) and May 2011 (Rs.2,54,571/-), totaling to Rs.20,45,600/-. Petitioner, having paid the said amount for the months from December 2010 to May 2011 on 21.5.2011 (Rs.18,19,096/- including interest of Rs.56,062/-) and paid interest of Rs.18,262/- vide challan dated 21.5.2011 and challan dated 21.6.2011 (Rs.3,00,000/- including Rs.10,000/- interest). The further allegation was that during the months of December 2010 to May 2011 petitioner utilized Cenvat Credit amount of Rs.10,45,749/- as detailed in the Annexure to the show cause notice, instead of discharging duty in PLA on consignment-wise clearances, without utilizing the Cenvat Credit. Petitioner was called upon to furnish an explanation as to why a demand and recovery should not be made in terms of Section 11A of the Central Excise Act, 1944 together with interest under Section 11AB of the said Act as also penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944, for utilizing the Cenvat Credit amount towards duty payment.
Petitioner submitted a reply by letter dated 6.2.2012 stating that the prohibition from utilizing Cenvat Credit account under Rule 8(3A) is with reference to arrears and not the entire credit and therefore, Rs.6,29,750/- (Rs.6,52,502 - Rs.22,752) has been correctly utilized. In addition, it was stated that there being no dispute that all arrears were cleared by May 2011, and if required to pay through PLA again, will be entitled to take credit of that sum in Cenvat Credit account while the entire exercise is revenue neutral, by placing reliance upon the decision of CESTAT in 'AIR CONTROL & CHEMICAL ENGINEERING CO. LTD. V. CCE AHMEDABAD' (271) ELT 305. As regards interest, it was stated that Rule 8(3A) does not permit levy of interest on utilization of Cenvat Credit during the prohibition period and hence, no interest is leviable on Rs.10,45,749/-. As regard penalty, it was stated that petitioner being under a serious liquid crunch, could not pay the duty within the stipulated time and placed reliance upon the decision of this Court in 'COMMISSIONER OF CENTRAL EXCISE, BANGALORE V. NISA INDUSTRIAL SERVICES P. LTD.' (24) STR 644. It was lastly stated that an opportunity of personal hearing be extended.
In compliance with the request of the petitioner, a personal hearing was extended on 24.2.2012. The Additional Commissioner of Central Excise, Bangalore, having considered the material on record, the submissions in the personal hearing, regard being had to the provisions of law, declined to accept the plea of the petitioner and by order dated 7.3.2012 Annexure-C held that the petitioner wrongly utilized the Cenvat Credit for payment of Rs.10,45,749/- towards Central Excise duty for the months of December 2010 to May 2011, hence to be treated as non-payment of duty under Rule 8 of the Central Excise Rules, 2002, with a further direction to demand the same from the petitioner in cash in terms of Rule 8(3A) of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944, in addition to recovery of interest under Section 11AB of the Central Excise Act, 1944 and penalty of Rs.50,000/- under Rule 25 of the Central Excise Rules, 2002.
That order, when carried in appeal before the Commissioner of Central Excise (Appeals-I) together with an application for stay / waiver of pre-deposit, the Appellate Authority by order dated 31.12.2012 Annexure-D directed the petitioner to make a pre-deposit of Rs.10,45,749/-, in cash, in terms of the proviso to Section 35F of the Central Excise Act, 1944 and to report compliance by 25.1.2013 failing which appeal would stand dismissed for non-compliance. Hence, this petition.

Appellant contentions:-Learned counsel for the petitioner points to Rule 8(1) of the Central Excise Rules, 2002 to submit that duty of goods removed from the factory or the warehouse during a month is required to be paid by the petitioner on the 6th day of following month if the duty is paid electronically by internet banking and by the 5th day of following month in any other case. Learned counsel further points to sub-Rule (3A) of Rule 8 of the Central Excise Rules, 2002 to submit that if the petitioner commits default in the payment of duty beyond 30 days from the due date as prescribed under sub-Rule (1), then the petitioner is liable to pay excise duty for each consignment at the time of removal without utilizing the Cenvat Credit until the assessee pays the outstanding amounts including interest thereon and in the event of failure it would be deemed that the goods are cleared without payment of duty and the consequences as in the Rules follow. According to the learned counsel though it is an admitted fact that the petitioner committed default during the months of December 2010, January 2011, February 2011, March 2011, April 2011 and May 2011 but did make payment of Rs.18,19,096/- towards tax liability and Rs.56,062/- towards interest by challan dated 21.5.2011 and yet another payment of Rs.18,452/- towards interest on 21.5.2011 and there afterwards Rs.3,00,000/- towards tax and Rs.10,000/- towards interest on 21.6.2011. Petitioner, according to the learned counsel though utilised the Cenvat Credit to deposit Rs.10,45,749/- is unable to state as to what were the transactions against which this amount was paid, as duty and the date on which it was paid.
Learned counsel hasten to add that the duty of Rs.20,45,600/- and Rs.84,324/- towards interest, was paid, in respect of consignments removed during the months of December 2010 to May 2011 and therefore, the Appellate Authority was not justified in directing a pre-deposit as it would amount to double payment. As regard the reason for filing the application for waiver for pre-deposit, it is submitted that due to financial crunch in the petitioner factory the request was made.

Respondent contentions:-Learned counsel for the revenue, per contra, seeks to sustain the order impugned as being well merited, fully justified and not calling for interference. According to the learned counsel, sub-Rule (3A) of Rule 8 of the Central Excise Rules, 2002 is unambiguous and does not admit of any interpretation other than cases of default in the payment of duty i.e. the assessee fails to make payment of the duty within 30 days from the date the duty falls due, is disentitled to utilise the Cenvat Credit for payment of duty, penalty and interest. In other words, on failure to pay the duty within the time stipulated under Sub-Rule (1) of Rule 8 and a further period of 30 days under Sub-Rule (3A), the assessee is disentitled to use the credit facility and is liable to pay duty for each consignment at the time of its removal and it is only after the assessee pays the entire outstanding amount including interests thereon, will be entitled to utilise the credit facility and not otherwise. Learned counsel submits that the Appellate Authority having noticed the admitted facts and having prima facie concluded that Rs.10,45,749/- paid by the petitioner by utilizing the Cenvat Credit, though unavailable to the petitioner, in law, such a payment was a nullity and could be recognised as payment towards duty, was fully justified in directing the petitioner to deposit Rs.10,45,759/- towards pre-deposit, a mandate under Section 35F of the Central Excise Act, 1944.

Reasoning of Judgment:-Having heard the learned counsel for the parties, perused the pleadings and examined the order impugned, under Sub-Rule (1) of Rule 8 of the Central Excise Rules, 2002 if an assessee, failed to pay the duty within the time stipulated i.e. on the 6th day of following month if it is paid electronically through internet banking or on the 5th day of following month in any other case, and a further period of 30 days under Sub-Rule (3A) is disentitled to make use of the Cenvat Credit. In the admitted facts, petitioner defaulted in the payment of duty for the months of December 2010 to May 2011, but did so with interest on 21.5.2011 in a sum of Rs.20,45,600/- towards duty and Rs.84,324/- towards interest and also payment of Rs.10,45,749/- towards duty by utilizing the Cenvat Credit, without disclosing the particulars against which it was paid nor the date of payment. Hence, it is not possible for this Court, at this stage to accept the plea of the petitioner as aired by its learned counsel, while High Court found force in the submission of the learned counsel for the revenue.
The order impugned does not suffer from serious infirmities occasioning grave injustice to the petitioner calling for interference in exercise of extraordinary writ jurisdiction under Article 226 of the Constitution of India.
Petition devoid of merits, is rejected. It is made clear that the Appellate Authority need not be influenced by any observation in this order while deciding on the merits of the appeal. Petitioner to comply with the order impugned on or before 26.3.2013.

Decision:-Petition rejected.

Comment:-There are a number of divergent views on the applicability of the provisions of Rule 8(3A) of the Central Excise Rules, 2002. One set of decisions take a lenient approach that the assessee is not required to pay cash for the credit utilised during the defaulting period while the other set of decisions take a very stringent view of the implementation of the said Rule. Moreover, in the case reported, even High Court restrained from granting interim relief from waiving the condition of pre-deposit of credit to be paid in cash that was used in the defaulting period.

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PJ/Case Law/2013-14/2086

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