2006 (6) TMI 313 - AT - Central Excise

Summary

Issues:
1. Challenge of validity of Section 3A of the Central Excise Act.
2. Utilization of Cenvat credit for duty payment.
3. Demand of interest under Rule 96ZO of the Rules.
4. Availment of Modvat credit for payment of duty.

Analysis:
1. The appeal was filed against the Order-in-Appeal passed by the Commissioner of Central Excise, Cochin regarding the duty liability fixed for the period 1997-98. The appellants challenged the validity of Section 3A before the High Court, which stayed the operation of the scheme. Subsequently, the appellants paid duty under Section 4 of the Act. However, when the High Court upheld the validity of Section 3A, the appellants had to discharge the duty liability as determined by the Commissioner. The appellants contended that they had paid the entire duty amount of Rs. 42,00,000 per annum.

2. The department argued that the appellants used Cenvat credit for duty payment under Section 4, which lapsed with the introduction of the compounded levy scheme. Therefore, the department demanded the amount of credit to be paid to the Government under Section 11D of the Central Excise Act. Additionally, interest was demanded for the delayed payment of duty. The lower authority upheld these demands, imposing equal penalty and interest.

3. The appellant's representative argued that the duty amount paid per Metric Tonne (MT) was not in excess of the duty payable, and therefore Section 11D should not be invoked. They also claimed that the availment of Cenvat credit was justified due to the circumstances of the case. The appellant's actual clearances were below the determined annual production capacity. Regarding the interest demand, it was highlighted that the entire duty liability of Rs. 42,00,000 was eventually discharged, despite the lower actual production.

4. The Tribunal examined the issue of Modvat credit utilization for duty payment. The appellants had availed Modvat credit of Rs. 5,13,118, which was challenged by the department. The Tribunal found that the availment of Modvat credit was not legal as the credit had lapsed with the introduction of the compounded levy scheme. Since the appellants did not receive a favorable order from the High Court regarding the validity of Section 3A, their action of availing Modvat credit was not sanctioned. The Tribunal concluded that the demand under Section 11D was justified. Regarding interest on delayed payment, the Tribunal upheld the statutory provision under Rule 96ZO, dismissing the appeal.