Whether Rule 8(3A) is invocable even if non payment of excise duty was due ignorance as regards dishonor of cheque?

PJ/Case Law/2013-14/1967

Case:-KUWER INDUSTRIES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA

Citation:- 2013 (295) E.L.T. 415 (Tri. - Del.)

Brief facts:-The appellants company is registered under Central Excise Rules, 2002 as manufacturer of excisable goods. The total excise duty payable by the appellant for the goods cleared from his unit in July, 2009 was Rs. 14,07,357/-. He adjusted the duty liability to the tune of Rs. 10,13,750/- against the Cenvat credit available in his account. Thus, there was a shortfall of excise duty payable to the extent of Rs. 3,93,607/-. The appellant issued cheque No. 514314, dated 1-9-2009 for Rs. 3,93,607/- drawn on Punjab National Bank, in favour of the Revenue, for payment of unpaid excise duty for the month of July, 2009. The cheque, however, was dishonored by the Bank. It is the case of the appellant that he was not informed of dishonor of the cheque either by the Bank or by the Department. On coming to know of this fact on 2-2-2010, the appellant paid the duty amount of Rs. 3,93,607/- and interest amounting to Rs. 25,234/- for 180 days was paid on 7-5-2010.
It is alleged that during the period August, 2009 to December, 2009, the appellant adjusted the excise duty on the goods cleared from his unit against his Cenvat credit and the amount of duty short paid was paid within 30 days of respective clearances.
The Commissioner, Central Excise, Noida was of the view that since the duty payable for the clearances made in the month of July amounting to Rs. 3,93,607/-, was not paid within 30 days of its becoming due, in view of Rule 8(3A) of Central Excise Rules, 2002, the appellant/applicant was supposed to pay the excise duty on the goods cleared subsequent to the default in cash irrespective Cenvat credit available in his account. Thus, by adjusting the excise duty payable against the Cenvat credit, the appellant has violated the Rule 8(3A) of the Central Excise Rules and committed a default.
Accordingly, a show cause notice dated 3-9-2010 was issued to the appellant. The appellant contested the show cause notice and after giving due hearing to the appellant, the Adjudicating Authority vide impugned Order dated 27-9-2011 disallowed the Cenvat credit amounting to Rs. 1,10,61,274/- utilized by the appellant and ordered the said amount to be demanded and recovered in cash in terms of provisions contained in Rule 8(3A) of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944. It was further ordered that interest on the above amount be also demanded and a penalty of Rs. 1 lakh was imposed on the appellant.
Feeling aggrieved by the aforesaid order, the appellant preferred the instant appeal wherein he moved the stay application seeking waiver of condition of pre-deposit of the adjudged demand, interest thereupon and the penalty.
Appellant’s contention:- Ld. Counsel for the appellant contended that the appellant has suo motu paid the deficiency of excise duty amounting to Rs. 3,93,607/- vide cheque No. 514314, dated 1-9-2009 issued in favour of the Revenue drawn on Punjab National Bank. Unfortunately, the cheque was dishonored but this fact was not brought to the notice of the appellant, which resulted in making good the shortfall of excise duty with interest. However, the balance excise duty of Rs. 3,93,607/- along with interest for 180 days was paid on 2-2-2010 and 7-5-2010 respectively. Ld. Counsel contends that there was no intention on the part of the appellant to avoid payment of excise duty and the delay has been caused because the factum of dishonor of cheque was not brought to the notice of the appellant either by the Revenue or by the Bank. Therefore, the appellant could not be penalized for delay. It is further submitted that since the appellant has already paid the balance excise duty and availed of Cenvat credit in respect of the subsequent clearances of excisable items asking him to make payment of the demand with interest would result in double taxation. As such, the order-in-appeal is not sustainable. Thus, ld. Counsel has prayed for waiver of the condition of pre-deposit of demand, interest thereon and the penalty.
Respondent’s contention:- Ld. Departmental Representative refuting the arguments drew the attention to Rule 8(3A) of the Central Excise Rules and submitted that a plain reading of the Rule would show that once the assessee has failed to pay the excise duty beyond thirty days from the due date, the assessee is required to pay excise duty on all clearances in cash till the excise duty due is paid with interest. It was further submitted that in the instant case despite of having committed default in making payment of arrears of excise duty, within 30 days of its becoming due, the appellant instead of paying the excise duty on the subsequent clearances in cash, availed of credit from Cenvat credit account, which amounts to violation of Rule 8(3A) of the Rules. As such, the order-in-appeal cannot be faulted. Learned Departmental Representative further submitted that even after committing the default in relation to payment of excise duty for the month of July, the appellant further committed default for the months of August to December, 2009. Thus, there is no case made out for waiver of condition of pre-deposit.
Reasoning of judgment:- The bench considered the rival submissions and perused the impugned order. It is undisputed that the cheque for payment of balance excise duty for the month of July amounting to Rs. 3,93,607/- issued on 1-9-2009 was dishonored. Therefore, prima facie, the aforesaid cheque, which was dishonored for whatsoever reasons, cannot be taken as the payment of excise duty. Admittedly, the arrears of excise duty were paid on 2-2-2010 i.e. after a delay of 180 days from the date on excise duty became due and the interest thereon was deposited much later i.e. on 7-5-2010. Thus, there is a clear default in payment of excise duty for a period more than 30 days. As such, Rule 8(3A) of the Central Excise Rules, 2002 would come into play, which clearly provides that if the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in Rule 8(3A), the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the Cenvat credit. Admittedly, in this case, the appellant has availed of Cenvat credit in violation of Rule 8(3A) of Central Excise Rules, therefore, prima facie, the Adjudicating Authority has rightly disallowed the Cenvat credit adjustment against the excise duty payable and raised the demand for the excise duty on subsequent consignments removed without making good the shortfall in excise duty for the month of July, 2009 with interest.
In view of the above, the bench did not find prima facie case for waiver of the condition of pre-deposit of demand. Accordingly, the appellant is directed to deposit the duty demand of Rs. 1,10,61,274/- with interest within 8 weeks from today. Condition of penalty of Rs. 1 lakh imposed on the appellant is however, dispensed with. It is clarified that in the event of appellant depositing the amount in terms of the order, Cenvat credit entries debited against the adjustment of excise duty in contravention of Rule 8(3A) of the Central Excise Rules shall be reversed. In the event of deposit, the recovery shall stand stayed. The stay application is disposed of.

Decision:- Pre-deposit ordered.
Comment:- The gist of this case is that the provisions of Rule 8(3A) of Central Excise Rules that states that if the assessee defaults in payment of duty beyond thirty days from the due date, excise duty is payable in cash for each consignment at the time of removal, without utilizing the Cenvat credit are very strict. Hence, even if the short payment was made unintentional or was due to ignorance of the fact that the cheque for payment of excise duty had been dishonored then also the provisions of Rule 8(3A) come into play.

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PJ/Case Law/2013-14/1967

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