Whether the duty amount paid through debits in the CENVAT credit account is recoverable from the assessee in view of Rule 8(3A) of the Central Excise Rules 2002?

PJ/Case Laws/2012-13/1179

Case:M/s BACTOLAC FORMULATIONS PVT LTD CCE, HYDERABAD Vs CCE, HYDERABAD M/s BACTOLAC FORMULATIONS PVT LTD

Citation: 2012-TIOL-970-CESTAT-BANG

Issue:- Whether the duty amount paid through debits in the CENVAT credit account is recoverable from the assessee in view of Rule 8(3A) of the Central Excise Rules 2002?

Brief Facts: - M/s Bactolac Formulations Pvt. Ltd. is engaged in the manufacture of P or P medicaments. They were discharging their duty liability by filing monthly ER-1 returns, in which scheme duty in respect of excisable clearances of a given month had to be paid or on before the 5th day of the next month. The Appellant committed default for the months of February and March 2007, for which duty with interest was paid on the 20th and 21st of February 2008. Duty for the month of April 2007, though paid in due time, was not paid entirely from PLA. A major part of this duty was paid from PLA and the balance from CENVAT account, the amounting to Rs.75,726/- (BCD+education cess). Due to irregularity in the mode of payment of duty for the month of April 2007 with reference to Rule 8 (3A), of the Central Excise Rules, 2002 department issued show cause notice dated 1/2/2008 to the Appellant demanding the aforesaid amount of Rs.75,726/- under Section 11A(1) of the Central Excise Act read with Rule 14 of the CENVAT Credit Rules 2004, also demanding interest thereon under Section 11AB of the Act, and proposing penalty under Rule 25 of the Central Excise Rules 2002 read with Section 11AC of the Act. The original authority adjudicating the dispute confirmed the above demand (with interest) against the Appellant and imposed on them penalty equal to duty under Section 11AC read with Rule 2, ibid. In appeal against the Order-In-Original, the learned Commissioner (Appeals) set aside the demand of duty after taking the view that the duty already paid through debits in the CENVAT credit account was acceptable in the absence of timely action by the department to prevent such utilization of credit. However, the learned Commissioner (Appeals) reduced the quantum of penalty imposed under Rule 25 to Rs.50, 000/- (Rupees fifty thousand only).

The appeal is directed against the penalty of Rs.50,000/- while the department's appeal is against the appellate Commissioner's order setting aside the demand of duty and interest thereon. The department, in their appeal, also seeks enhancement of the penalty to the original level.

Appellant’s Contention: -
The learned counsel for the assessee cited Solar Chemferts Pvt. Ltd. Vs. Commissioner of Central Excise, Thane-I [2012(276) E.L.T 273 (Tri-Mum)] = (2011-TIOL-1968-CESTAT-MUM) in support of the view taken by the lower appellate authority. It was submitted that the issue was squarely covered by the cited decision.

In rejoinder learned counsel for the Appellant submits that the case of Godrej Hershey Ltd. is distinguishable and that the present issue is squarely covered by Solar Chemferts (supra), the facts of which are said to be similar to the facts of the present case.
Respondent’s Contention: -
The learned Superintendent (A.R.) relies on Godrej Hershey Ltd. Vs Commissioner of Central Excise, Bhopal [2011 (263) E.L.T. 663 (Tri-Del)] = (2011-TIOL-65- CESTAT-DEL) and submits that this decision supports the department's appeal.
Reasoning of Judgement: - On a perusal of the decisions cited before CESTAT, it was found that the facts of the case of Solar Chemferts (supra) are similar to the facts of the instant case. That decision was rendered by a two-Member Bench of this Tribunal and the same is found in para 8 of the order which reads as follows:
“8. It is to be noted that in Rule 8(3A) there is no ban on taking of credit. There is a ban only on utilization of Cenvat Credit for payment of duty. Now the fact to be noticed is that the adjudication order does not deal with the Cenvat credit utilized during the defaulting period for payment of the duty due on the goods, though such utilization is in contravention of the provisions of Rule 8(3A). If duty as demanded in the adjudication order is also to be paid (in cash) and if thereafter the amount utilized in Cenvat credit is not refunded. There is double payment of duty on the same goods. There is no authority under law for collection of duty twice”
It is the above view that stands accepted by the department and, therefore, the present appeal of the department is liable to be dismissed on merits. The Tribunal's decision in Godrej Hershey case was rendered on a different set of facts. That was a decision principally on the question whether sub-rule (3A) of Rule 8 was attracted in a case of partial default of duty for a given calendar month. In the instant case, the entire amount of duty for the period of default was apparently paid in full from PLA and, for the month of April 2007, the duty was paid within the prescribed time and hence there was no default. The only issue in the present case is whether the assessee should be directed to pay an amount equal to the CENVAT credit utilized by them for payment of duty for the month of April 2007. If they are made to pay so, without being granted refund of the utilized CENVAT credit, the same would amount to double payment of duty.
However, even as per the decision in Solar Chemferts (supra), the Appellant will have penal liability under Rule 27 of the Central Excise Rules 2002. At present, the penalty on them is under Rule 25. In terms of the Hon'ble Gujarat High Court's decision in the case of Commissioner of Central Excise & Customs Vs. Saurashtra Cements Ltd. [2010(260)E.L.T.71 (Guj)], only Rule 27 penalty can be imposed on the assessee in the facts and circumstances of this case. The Hon'ble High Court's view has been followed by this Tribunal in Solar Chemferts case. Tribunal hold that the Appellant in the present case is liable to penalty of Rs.5,000/-(Rupees five thousands only). Accordingly the penalty imposed on them is reduced to Rs, 5000/-(Rupees five thousands only) under Rule 27.

Decision: - The department's appeal is dismissed and the assessee's appeal is disposed of with the above modification of penalty.

Comment:-Rule 8(3A) has been very dangerous provisions for the central excise assesses. If they default in payment of duty for a period more than a month then they have to pay the duty consignment wise in cash and cenvat credit is also freezed. A manufacturer who is running the factory after clearing goods under proper invoice but suffering from financial hardship then he has to pay duty in cash before clearance of goods. Even this provision is not made applicable to a manufacturer who clears the goods clandestinely. There is number of decisions which allow the credit to him. But a registered law abiding manufacturer is not allowed to do so. He is already suffering from financial constraints and is unable to pay the duty. He is made to suffer more by asking him to pay the duty in cash only and even before despatch of goods. This provision is not understandable by us.
Further, we have seen that when there is clerical mistake in payment of duty and cenvat is available with manufacturer then also the same provision is made applicable.

In yet another case, the manufacturer did not paid the duty consignment wise but has paid the shortfall in duty, the department is saying that the default is continued and you should pay the duty in cash only. We clearly said that we do not have time machine to pay the duty consignment wise for those days of default but we have paid much more in PLA after this date. But the department is not agreeing the same and says that the default is continued and you should pay the duty in cash only even after the four years of default. The huge demands for every year is being issued to such manufacturer and if the same is confimed then the factory will lead to closure. Even after the sale of factory, the complete demand cannot be recovered.

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PJ/Case Laws/2012-13/1179

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