Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/033

08 March 2010

Case Study

Prepared by:

CA Pradeep Jain

And Megha Jain

Introduction: -

The duty is not payable on exempted goods. But if an assessee has charged duty on exempted goods then the same is recoverable under Section 11D of Central Excise Act. Now, the question in the instant case is whether the duty is payable in cash only or whether the duty can be paid from Cenvat credit available with the manufacturer. The other question arose in that case is that whether the appellate authority can go beyond the show cause notice.

Relevant Legal Provisions:-

Section 11D of the Central Excise Act, 1944 - Duties of excise collected from the buyer to be deposited with the Central Government

(1) Notwithstanding anything to the contrary contained in any order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder, [every person who is liable to pay duty under this Act or the rules made thereunder, and has collected any amount in excess of duty assessed or determined and paid on any excisable goods under this Act or the rules made thereunder from the buyer of such goods] in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.

[(1A) Every person, who has collected any amount in excess of the duty assessed or determined and paid on any excisable goods or has collected any amount as representing duty of excise on any excisable goods which are wholly exempt or are chargeable to nil rate of duty from any person in any manner, shall forthwith pay the amount so collected to the credit of the Central 30 Government.]

[(2) Where any amount is required to be paid to the credit of the Central Government under [sub-section (1) or sub-section (1A), as the case may be,] ^Old[ sub-section (1)] and which has not been so paid, the Central Excise Officer may serve on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.

(3) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (2), determine the amount due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.

(4) The amount paid to the credit of the Central Government under [sub-section (1) or sub-section (1A) or sub-section (3), as the case may be,] ^Old[ sub-section (1) or sub-section (3)] shall be adjusted against the duty of excise payable by the person on finalisation of assessment or any other proceeding for determination of the duty of excise relating to the excisable goods referred to in [sub-section (1) and sub-section (1A)] ^Old[sub-section (1)].

(5) Where any surplus is left after such adjustment under sub-section (4), the amount of such surplus shall either be credited to the Fund or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B and such person may make an application under that Section in such cases within six months from the date of the public notice to be issued by the Assistant Commissioner of Central Excise for refund of such surplus amount.]

Section 11D of the Central Excise Act, 1944 - Interest on the amounts collected in excess of duty

(1) Where an amount has been collected in excess of the duty assessed or determined and paid on any excisable goods under this Act or the rules made thereunder from the [buyer of such goods or from any person or where a person has collected any amount as representing duty of excise on any excisable goods which are wholly exempt or are chargeable to nil rate of duty, the person] ^Old[buyer of such goods, the person] who is liable to ay such amount as determined under sub-section (3) of section 11D, shall, in addition to the amount, be liable to pay interest at such rate not below ten percent and not exceeding thirty-six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first day of the month succeeding the month in which the amount ought to have been paid under this Act, but for the provisions contained in sub-section (3) of section 11D, till the date of payment of such amount:

Provided that in such cases where the amount becomes payable consequent to issue of an order, instruction or direction by the Board under section 37B, and such amount payable is voluntarily paid in full, without reserving any right to appeal against such payment at any subsequent stage, within forty-five days from the date of issue of such order, instruction or direction, as the case may be, no interest shall be payable and in other cases the interest shall be payable on the whole amount, including the amount already paid.

(2) The provisions of sub-section (1) shall not apply to cases where the amount had become payable or ought to have been paid before the day on which the Finance Bill, 2003 receives the assent of the President.

Explanation 1. - Where the amount determined under sub-section (3) of section 11D is reduced by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, the interest payable thereon under sub-section (1) shall be on such reduced amount.

Explanation 2. - Where the amount determined under sub-section (3) of section 11D is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, the interest payable thereon under sub-section (1) shall be on such increased amount.]

Unison Metals Ltd. v/s CCE, Ahmedabad

[Final Order No. A/94/WZB/AHD/2010, dated 25.01.2010]

Brief Facts of the Case: -

¨ The appellants are engaged in the manufacture of Steel Patta Patti and they clear the same on the payment of duty. They were also clearing steel scrap which is exempted from payment of duty under Notification No. 3/2005-CE, dated 24.02.2005.

¨ Since the appellants were not maintaining separate account in respect of inputs used in the manufacture of dutiable and exempted goods, appellants were required to pay 10% of the value as per the provisions of Rule 6 (3) of the Cenvat Credit Rules, 2004.

¨ Instead of paying 10%, the appellants were paying duty at the rate 16% from the cenvat credit. The Department informed them that the procedure followed by them was wrong and the duty was recoverable in cash under the provisions of Section 11D of the CEA, 1944.

¨ A show cause notice was issued to the assessee requiring the appellants to show cause as to why the amount of Rs. 1, 13,092/- should not be recovered from them in cash under Section 11D of CEA, 1944 and the interest as applicable u/s 11DD of CEA, 1944.

¨ The original Adjudicating Authority confirmed the demand and imposed penalty of equal amount demanded. He maintained that the amount is paid on exempted goods which were not payable. Hence, the appellant cannot pay the same from Cenvat account and the same is recoverable in cash under Section 11D of Central Excise Act.

¨ In appeal filled by the appellant, the Commissioner (A) held that appellant were required to reverse the cenvat credit @ 10% from Cenvat credit as per Rule 6 of Cenvat credit rules. They need not to pay the duty in cash. As such, they could pay 10% by reversing the Cenvat credit but the balance amount is to be paid in cash. This is due to the fact that they are recovered the same amount from the customer.

¨ Accordingly, the appellant have filed further appeal against the impugned order before the Tribunal. The department has also filed the appeal against the order which is going against them.

Appellant’s Contention: -

The appellant have contended that the Commissioner (A) has traveled beyond the scope of the Show cause notice. The proposal in the SCN was to recover the amount under Section 11D of the CEA, 1944 and there was no proposal to recover a portion in cash and partly from Cenvat credit account.

With regard to recovery under Section 11D as proposed in the show cause notice and confirmed by the Original Authority, the appellant have relied upon the decision of the Tribunal in the case of the Shivam Metals vs. CCE, Jaipur [2009 (235) ELT 81 (Tri.-Del.)] wherein it was held that since the appellants paid the duty recovered by them to the Government, the provisions of Section 11D were not attracted. The appellant submitted that this is totally identical issue and the final product in case cited above and that of appellant are identical. Even the facts and circumstances of the case is also same. As such, the same case is applicable and relief should be granted to them.

The appellant has also relied upon the Board Circular No 651/42/2002-CX, dated 07.08.2002 which says that the duty under Section 11D is payable from Cenvat account. Moreover, the appellant submitted that when the duty is already paid from Cenvat account and as such the provisions of Section 11D are not attracted in the instant case.

The appellant had also relied upon the judgments given in the cases of Shiva Steels v/s CCE, Jaipur [2008 (228) ELT 157 (Tri-Del)], Viral Control Pvt Ltd v/s Commissioner of C. Ex., Ahmd [2009 (235) ELT 681 (Tri-Ahmd)], Sterlite Industries (India) Ltd v/s Commissioner of C. Ex., Vapi [2008 (225) ELT 397 (Tri-Ahmd)].

Reasoning of the Judgement: -

The Tribunal considered the judgment given in the case of Shivam Metals and agreed with the contention of the appellant that the facts in this case were similar and therefore the said decision was squarely applicable to the present case.

With regard to the decision of the Commissioner (A), the Tribunal held that there was no legal provision to require the manufacture to pay duty from PLA only and there is no such provision under Rule 6 of the Cenvat Credit Rules.

In the absence of specific legal provisions and also in view of the fact that there was no proposal in the SCN to require the appellant to pay a portion from PLA, the impugned order cannot be sustained and was therefore set aside.

Decision of the Tribunal

Appeal allowed with consequential relief.

Comments & Conclusion: -

Thus, the duty paid from the cenvat credit also amounts to payment of duty and the provisions of Section 11D cannot be made applicable for recovering the duty in cash.

This decision is very positive decision for the assessees who have paid the duty from cenvat credit under bona fide belief that duty was payable from cenvat credit. Moreover, the provision has also changed and section 5A has been amended and now it is mandatory on the manufacturer to avail the exemption.

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PJ/CASE STUDY/2009-10/033
08 March 2010

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