Whether Rule 8(3A) can be invoked for irregular utilisation of credit earned in April month for discharging duty liability for preceding month?

Case:- PRANAV CONSTRUCTION SYSTEMS PVT LTD V/S COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:- 2013-TIOL-1730-CESTAT-MUM

Brief Facts:- The present appeal has been filed against Order-in-Original No. Belapur/69/Bel.II/R.II/Commr./WLH/2008-09 dated 31/03/2009 passed by Commissioner of Central Excise, Belapur. The appellant, M/s. Pranav Construction Systems Pvt. Ltd. are manufacturers of excisable goods falling under Chapters 40 & 73 of Central Excise Tariff Act. For the month of March 2007, the duty liability of Rs.8449174/-was to be paid by 31/03/2007. The appellant paid a sum of Rs.3596124/- from the PLA account and a sum of Rs.4692795/- from the Cenvat Credit account. There is no dispute about these payments; thus, the outstanding duty liability as on 31/03/2007 was Rs.160225/-. This duty liability was paid by the appellant on 01/04/2007 from the Cenvat Credit of capital goods earned on 01/04/2007. As per sub-rule 3 (4) of Cenvat Credit Rule, 2004, it is provided that “while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be” for payment of duty. Therefore, utilization of the Cenvat Credit to the extent of Rs.160225/- on 01/04/2007 by the appellant was wrong. The appellant made good the said payment through PLA account on 30/04/2008 along with interest of Rs.22831/- vide letter dated 08/05/2008, the appellant also informed the department about the mistake in payment of duty and the subsequent rectification. Thereafter, the department issued a show-cause notice dated 02/06/2008 alleging that there was a default in payment of duty of Rs.1,60,225/- which continued from 01/04/2007 to 30/04/2008 and therefore, during the said period, the appellants should have discharged the duty liability on the goods cleared by paying duty in cash and the availment of Cenvat Credit for payment of duty during this period was barred by the provisions of Rule 8 (3A) of the Central Excise Rules, 2002. Accordingly, the appellant was directed to pay a sum of Rs.3,86,55,390/- through PLA along with interest thereon under the provisions of Rule 8 of the Central Excise Rules, 2002 read with Section 11 A of the Central Excise Act, 1944 and Section 11AB of the Central Excise Act, 1944. It was also proposed to impose penalties on the appellant under Rule 25 of the said Rules and also under Rule 15 of the Cenvat Credit Rules, 2004. It was further proposed to confiscate goods valued at Rs. 241868717/- cleared during the impugned period under Section 12 of the Central Excise Act, 1944 read with Notification No. 68/63-CE dated 04/05/1963 further read with Rule 25 & 27 of Central Excise Rules, 2002 and to impose a fine under Section 34 of the Central Excise Act, 1944. The said notice was adjudicated vide the impugned order. The adjudicating authority confirmed the duty demand of Rs. 38665370/- along with interest thereon and also imposed a penalty of Rs. 50 lakhs for wrong utilization of the Cenvat Credit. Aggrieved of the same, the appellant filed the present appeal.

Appellant’s Contention:- The appellant contended that the outstanding amount of Rs.160225/- as on 31/03/2007 was made good by them on 01/04/2007 by wrongly utilizing the Cenvat Credit amount lying with them on 01/04/2007. As per Rule 3 (4) of the Cenvat Credit Rules, 2004, they could not have utilised the Cenvat Credit for payment of duty for the month of March 2007, as the credit has been earned only in April, 2007. Thus, it was a question of wrong utilization of credit that is involved in the present matter. If the credit has been wrongly utilised the appropriate provisions for recovery of the same is Rule 14 of the Cenvat Credit Rules, 2004 and therefore, the invocation of Rule 8 of Central Excise Rules, 2002 in the present case is not warranted at all. Therefore, confirmation of duty demand to the extent of Rs.3,86,55,370/- for a short payment of Rs.1,60,225/- is not envisaged or sanctioned by law. He further submits that the appellant has been imposed penalty under Rule 15 for wrong utilization of the Cenvat Credit. Thus, the finding of the adjudicating authority against the appellant is wrong utilization of the Cenvat Credit. In view of the above, the impugned demand is not sustainable in law.
He placed reliance on the following cases decided by this Tribunal:-
1. Deepak Silicate (P) Ltd. - 2010 (258) ELT 127 (Tri-Del) = 2010-TIOL-1738-CESTAT-DEL)
2. Solar Chemferts Pvt. Ltd., Vs. CCE, Thane -2012 (276) ELT 273 (Tri-Mum) = (20 11-TIOL-1968-CESTAT-MUM)
These decisions of the Tribunal have been followed by this Tribunal in a number of other decisions, such as, Bactolac Formulations Pvt. Ltd., Vs. CCE = (2012-TIOL-970-CESTAT-BANG)., Venkatesh Automobiles Pvt. Ltd., Vs. CCE = (2013-TIOL-1319-CESTAT-MUM) & F. S. Engineer Vs. CCE, Ahm-II = (2013-TIOL-880 -CESTAT-AHM). As per these decisions, once the duty payment has been made good along with interest thereon, it cannot be said that the availment of Cenvat Credit during the period of default is wrong. In the light of the above decisions, the impugned demand is not sustainable in law.
In his rejoinder, the appellant submits that the decision of Hon'ble High Court of Karnataka in the case of Manjunatha Industries cited by the Revenue was passed in the context of a stay order and in the said order, the Hon'ble High Court made it clear that the observations therein is not binding on the appellate authority, while deciding the merits of the appeal and therefore, the said decision of the Hon'ble High Court of Karnataka cannot be taken as a precedent.

Respondent’s Contention:- The respondent contended that there was an outstanding liability of excise duty as on 31/03/2007 of Rs.1,60,225/-. This default was made good only on 30/04/2008 and default continued during the period from May 2007 to April 2008. Therefore, during this period from May 2007 to April 2008, the appellant could not have availed or utilised Cenvat Credit towards payment of duty on the clearance of the excisable goods and therefore, the payment of duty availing Cenvat Credit during this period amounting to Rs.3,86,55,370/- is not sanctioned by law. Therefore, the appellant is liable to make good this amount of duty demand through PLA account which they can take re-credit on payment through PLA. Therefore, he submits that confirmation of duty demand in the impugned order is sustainable in law.
He further relies on the decision of the Hon'ble High Court of Karnataka in the case of Manjunatha Industries Vs CCE, Bangalore = (2013-TIOL-285-HC-KAR-CX) wherein it was held that in case of default in payment of duty, prohibition under Rule 8 (3A) of the Central Excise Rule, 2002 from utilizing Cenvat Credit account is not with reference to arrears but the entire credit lying in the account. Therefore, the assessee has to pay excise duty through account current for each consignment at the time of removal. Since the Cenvat Credit was unavailable, utilizing the same for payment of duty was an exercise in nullify and could not be recognized as payment towards duty. In the light of this decision of the Hon'ble High Court of Karnataka, the other decisions relied upon by the appellant becomes irrelevant. Accordingly, he prays for upholding the impugned order.

Reasoning of Judgment:- The Hon’ble Tribunal held that it is evident to refer to the evolution of the Central Excise Law after the introduction of self assessment and payment of duty on monthly basis by the assessee themselves. Prior to 1996, the Central Excise assessee was required to discharge the excise duty liability at the time of removal of the goods from the factory. In other words, the payment was made prior to the clearance of the goods even without realizing the duty from the Customers. Therefore, as a matter of concession to the assessee, the facility for payment of duty on fortnightly payment was introduced by the Government and the assessee was required to pay excise duty liability on the goods cleared as a fortnightly basis. Later on this facility was further extended to provide for monthly payment of duty. This was a facility granted to the assessee so as to give certain reliefs in the matter of payment of duty. When these provisions were evaluated after a lapse of time, it was noticed by the Government that certain assesses were misusing the facilities. In other words, they were not discharging the excise duty liability at the end of the month as provided for in the law. Therefore, as a measure of deterrence, provisions were introduced under Rule 8 of the Central Excise Rules, 2002, which underwent many changes. With effect from 2006, the provision is that if the assessee defaults in payment of duty by the due date and the default continues beyond a period of 30 days, then the assessee is required to pay excise duty for each consignment at the time of its removal, without utilizing the Cenvat credit till such time the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided for in these rules shall follow. The language used in the said Rules inherently implies that a deliberate failure in discharge of duty liability on part of the assessee. It does not cover a situation where there is a short payment of duty on account of error in computation of duty, or by wrong availment of Cenvat credit for payment of duty, etc. The Cenvat Credit Rules provides for taking and utilizing Cenvat Credit and the conditions required to be followed with respect to such availment of duty. Whenever there is a non-compliance of provisions of the cenvat Credit Rules, the said Rules themselves provide for penal consequences. In other words, the Cenvat Credit Rules, 2004 is a complete code in itself providing for the terms and conditions of taking and utilization of credit and also for consequences on account of non-compliance with the provisions of said Rules. Therefore, if there is an error in availing the credit or wrong availment of credit, the Cenvat Credit Rules themselves can deal with the situation and there is no need to invoke the provisions of Central Excise Rules. In the present case the appellant has wrongly utilised Cenvat Credit of Rs.1,60,225/- for payment of duty since the credit was earned subsequent to the month in which the goods were cleared and therefore, the appellant could not have utilised the credit for payment of duty on the goods cleared during the preceding month. It was thus a case of wrong availment of credit and not a case of default in payment of excise duty on the goods. The total duty liability for the month of March 2007 was Rs. 84,49,174/-. A sum of Rs. 46,92,795/- was discharged through Cenvat Credit during the month of March 2007 and another amount of Rs. 35,96,124/- was paid through PLA. Thus, short payment of duty was Rs. 1,60,225/- which was made good on 01/04/2007, this conduct on the part of the appellant cannot be termed as a deliberate attempt to default in payment of duty. In the present case, the appellant paid the duty on 01/04/2007 through by wrongly utilizing the Cenvat Credit earned in the month of April 2007. This error on the part of the appellant was noticed by himself and made good in April 2008 along with interest and thereafter, the appellant intimated to the department after rectifying the error committed. In these circumstances, it cannot be said that the appellant deliberately defaulted in payment of excise duty. The adjudicating authority himself has come to the same conclusion in the impugned order, where in para 35 of the order he has concluded that the Cenvat Credit earned during the month of April 2007 has been utilised in the payment of duty for earlier month in contravention of the Cenvat Credit. Thus, what emerges from the impugned order is that the appellant wrongly availed the Cenvat Credit payment of duty under Rule 14 of the Cenvat Credit Rules provides for recovery of Credit wrongly taken or utilised. In the impugned case, the appellant has reversed the credit and made good the wrongly availed credit along with interest thereon. Therefore, they viewed that the provisions of Rule 8 of the Central Excise Rules, 2002 are not at all attracted. Therefore, the confirmation of duty demand under Rule 8 is not sustainable in law. Inasmuch as the assessee has made good the wrongly availed Cenvat Credit along with interest, imposition of penalty of Rs. 50 lakhs is totally unwarranted. However, for the contravention of the Cenvat Credit Rules, 2004 a penalty of Rs.2000/- as provided under Rule 15(3) of the Cenvat Credit Rules should suffice. Thus the appeal is disposed of in above terms.
Decision:- The appeal is allowed on terms.

Comment:-The substance of this case is that there is difference between deliberately escaping payment of duty and defaulting in the mode of payment of duty. The provisions relating to deliberately avoiding payment of duty within the stipulated time are contained in Rule 8 of the Central Excise Rules and that concerning irregular availment of credit are contained in the Cenvat Credit Rules. When an assessee irregularly or wrongly utilises the credit available, the provisions for recovery of wrongly availed credit are to be invoked as contained in Rule 14 of the Cenvat Credit Rules rather than invoking the provisions contained in Rule 8 of the Central Excise Rules for deliberately escaping payment of excise duty within prescribed time. Moreover, the default committed unintentionally by the assessee was made good by them subsequently and the duty was paid in cash along with interest. Accordingly, in the present case, the demand raised by invoking provisions of Rule 8 was quashed and the exceptionally high penalty imposed was reduced.

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