2014 (6) TMI 487 - AT - Central Excise

Duty demand - Utilization of lapse credit for payment of duty - Assessee contends that inasmuch as the duty liability arose in the month of March, 2008 itself and if they would have paid the same at the time of raising the invoices they were in a position to utilize the said credit. The duty could not be paid in the month of March, 2008, inadvertently and as such, the credit should be allowed to be utilized for payment of duty subsequently in the month of June 2008 - whether the credit which has already lapsed as on 1.4.08, can be used for payment of duty in the month of June, 2008, even in respect of clearance effected prior to 1.4.2008. Held that - in terms of provisions of Rule 8 of Central Excise Rules, 2002, the duty liability in respect of goods cleared in March, 2008 is to be discharged in the month of March, 2008 itself. If the assessee defaulted in payment of duty beyond 30 days from the due date, he is debarred from utilizing the Cenvat credit. As per the appellants himself, the duty liability arose in the month of march, 2008 and the same was discharged beyond the period of 30 days in June, 2008. As such, consequence of violation of Rule 8(3A) of the Central Excise Rules, 2002 would flow resulting in denial of utilization of Cenvat credit along with interest and the penal provisions inasmuch as such goods have to be held as having been cleared without payment of duty - Assessee is directed to discharge their duty liability in cash along with interest - However, Penalty is set aside - Decided partly in favour of assessee.

Summary

Issues: Utilization of lapsed credit for payment of duty in the month of June 2008; Clearance of waste and scrap in March 2008; Denial of credit to the steel division; Imposition of penalty on both appellants.

The judgment involves two appeals arising from the same set of facts. The appellants, engaged in manufacturing paper and MS ingots, opted for exemption under notification No. 4/08 from 1.4.2008. Rule 11(2) of Central Excise Credit Rules, 2004 required them to reverse Cenvat credit on inputs upon opting for exemption. The appellants cleared waste and scrap in March 2008 but paid duty in June 2008 using lapsed credit. Revenue alleged malafide intention, initiating proceedings and proposing recovery of duty. The original adjudicating authority confirmed the demand, denying credit to the steel division and imposing penalties on both appellants, upheld by the Commissioner (Appeals), leading to the present appeal.

The main dispute revolves around the utilization of lapsed credit for duty payment in June 2008. The appellants argued they could have used the credit if duty was paid in March 2008 when the liability arose. However, Revenue contended that lapsed credit was unavailable for utilization. Doubts were raised regarding the clearance date of waste and scrap in March 2008, as the appellants used new invoices without permission, possibly backdating them to transfer lapsed credit to their steel division.

The Tribunal noted the appellants' failure to explain the need for new invoices and their non-disclosure in the ER 1 return, casting doubt on the actual clearance date. The legal issue was whether lapsed credit could be used for duty payment in June 2008 for clearances before 1.4.2008. The Tribunal held that even if clearances were in March 2008, lapsed credit could not be utilized later. Violation of Rule 8 of Central Excise Rules debarred credit utilization for delayed duty payment, as confirmed by a Madras High Court case.

The Tribunal dismissed the paper division's appeal, directing cash duty payment with interest but set aside the penalty due to doubts on clearance dates. The steel division was denied credit due to the paper division's barred payment. If the paper division paid duty in cash, the steel division could claim credit; otherwise, they must reverse it. The penalty on the steel division was unjustified, as no evidence showed their awareness of credit utilization, thus setting it aside.

In conclusion, both appeals were disposed of accordingly, with the judgment pronounced in open court.