Withdrawal of cenvat facility under Rule 8(3A) is unconstitutional.

PJ/Case Law /2016-17/3242

Case- PRAWEG CONVEYORS VERSUSCOMMISSIONER OF C. EX., KALYAN-III

Citation- 2016 (337) E.L.T. 450 (Tri. – Mumbai)

Brief Facts-This appeal is directed against Order-in-Appeal No. SB/134/Th-I/10, dated 31-8-2010 passed by the Commissioner (Appeals), Central Excise, Mumbai Zone I, whereby ld. Commissioner (Appeals) upheld the Order-in-Original dated 16-2-2009 and rejected the appeal filed by the appellant.
The fact of the case is that the appellant defaulted the monthly payment of excise duty for the month of May, 2005, August, 2005 and September, 2005 which was paid belatedly on 2-12-2006. The Assisstant Commissioner vide his order dated 21-12-2005 forfeited the facility of monthly payment of excise duty and utilization of Cenvat credit for the period of two months from the date of his order. The appellant during the period April, 2006 and May, 2006 paid duty from Cenvat account on monthly basis therefore, show cause notice was issued proposing penalty under Rule 25 of Central Excise Rules, 2002. The adjudicating authority while adjudicating the show cause notice imposed penalty of Rs. 7,58,552/- under Rule 25(1)(a) of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. This penalty amount is equal to the duty amount for the period April, 2006 and May, 2006. Aggrieved by the said Order-in-Original, the appellant filed appeal before the Commissioner (Appeals) who rejected the appeal, therefore, appellant appeared before the Tribunal.
Appelants Contention-Ms. Padmavati Patil, ld. counsel for the appellant, submits that as regard the utilization of Cenvat credit Hon’ble Gujarat High Court in case of Indsur Global Ltd. v. Union of India [2014 (310) E.L.T. 833 (Guj.)] held the Rule 8(3A) as unconstitutional wherein it was provided that during the default period the assessee is not entitled to pay the excise duty from the Cenvat credit account. She submits that in view of this judgment appellant was not required to pay the duty from the cash account and duty paid by them from Cenvat credit account is correct and legal. She further submits, as regard the penalty under Rule 25 she relied upon the judgment in case of Commissioner of C. Ex. & Customsv. Saurashtra Cement Ltd. [2010 (260) E.L.T. 71 (Guj.)] according to which the penalty under Rule 25 can be imposed when the ingredients provided under Section 11AC are satisfied whereas this is not the case of suppression or wilful mis-statement, fraud and collusion, etc., therefore, penalty under Rule 25 cannot be imposed.

Respondents Contention-Shri Sanjay Hasija, ld. Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that Hon’ble Gujarat High Court in the case of Indsur Global Ltd. (supra) only decides issue regarding the utilization of the Cenvat credit whereas the assessee is still required to pay duty on consignment basis and for this contravention appellant is liable for penalty. In support of his submission, he placed reliance on Shivam Pressingsv. Commissioner of Central Excise, Pune-I [2015 (326). E L.T. 351 (Tri.-Mumbai)].

Reasoning Of Judgement-The Tribunal carefully considered the submissions made by both sides.
It found that this was a case of imposition of penalty under Rule 25 which is equal to the duty amount payable during the month of April and May, 2006. The penalty was imposed on the ground that the appellant during April and May, 2006 cleared the goods without paying the duty on consignment basis. Duty was paid for this period on monthly basis and debited the Cenvat credit account. Fact is not under dispute that the duty for this period has been paid along with interest. As regard the utilization of Cenvat credit, issue squarely covered by the Hon’ble Gujarat High Court judgment in case of Indsur Global Ltd. (supra), wherein it was held that the assessee is permitted to utilize Cenvat credit. In view of this judgment, utilization of Cenvat credit for payment of duty during the default period is not illegal. As regard the payment of duty on consignment basis ,the Tribunal agreed with the ld. AR that the Hon’ble High Court judgment in case of Indsur Global Ltd. (supra), has clearly held that the duty during the default period is required to be paid on consignment basis. However, appellant has discharged the duty and whatever delay in payment of duty on the basis of date of clearance of the goods, they have paid interest as applicable. This is a case of delay in payment of duty and cannot be construed as case of evasion of duty, therefore, appellant is not liable for penalty under Rule 25. In the judgment cited by the ld. counsel in case of Saurashtra Cement Ltd. (supra), the Hon’ble Gujarat High Court, on the issue of imposition of penalty under Rule 25 in the identical case has observed as under :
It is also to be borne in mind that Rule 25 starts with the word “Subject to the provisions of Section 11AC…............”. Section 11AC of the Central Excise Act deals with penalty for short-levy or non-levy of duty in certain cases. It says that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of Section 11AC, shall also be liable to pay a penalty equal to the duty so determined. For the purpose of invoking Section 11AC of the Act, the condition precedent is that the duty has not been levied, or paid or short-levied or short-paid or the refund is erroneously granted by reasons of fraud, collusion or any wilful misstatement or suppression of facts. If these ingredients are not present, penalty under Section 11AC cannot be levied. Since Rule 25 can be invoked subject to the provisions of Section 11AC of the Act, as a natural corollary, the ingredients mentioned in Section 11AC are also required to be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules.
As per the interpretation drawn by the Hon’ble High Court in the above judgment regarding the imposition of penalty under Rule 25, in the present case also it is not the case of non-levy/short-levy, non-payment/short-payment of duty by suppression or wilful misstatement, fraud and collusion or contravention of any provision of this act or rule made with intent to evade payment of duty, therefore, applying the ratio of this judgment appellant is not liable for penalty under Rule 25. As regard the judgment relied upon by the ld. AR in case of Shivam Pressings (supra), the Tribunal found that the facts in that case was that the assessee did not pay duty on consignment-wise either through Cenvat credit or through PLA, whereas in the present case the appellant has admittedly paid the duty from the Cenvat credit account, the facts of the cited judgment and in the present case are different, therefore, the ratio of the said judgment is not applicable to the fact of the present case. As per the above discussion and settled legal position, penalty is set aside. The impugned order is set aside and appeal is allowed.

Decision- Appeal allowed

Comment-The crux of the case is that the demand of duty to be paid in cash for default under Rule 8(3A) of the Central Excise Rules, 2002 is not tenable as the Hon’ble Gujarat High Court has struck down Rule 8(3A) as unconstitutional. Moreover, it is also held in the case of Saurashtra Cement that for default under Rule 8(3A), penal provisions under Rule 25 of the Central Excise Rules, 2002 is not sustainable.

Prepared By- Praniti Lalwani

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PJ/Case Law /2016-17/3242

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