2015 (9) TMI 351 - HC - Central Excise

Duty demand - Duty paid through debit made in CENVAT Credit account - contravention of the provisions of Rule 8(3) of the Central Excise Rules, 2002 - Held that - A bare reading of Rule 14 would indicate that where the assessee has taken or utilized wrongly or has been erroneously refunded the CENVAT credit, then authorities would be entitled to recover the same from the manufacturer or the provider of the output service and provisions of Sections 11A and 11AB of Central Excise Act or Sections 73 and 75 of the Finance Act would apply mutatis mutandis for effecting such recoveries. Thus, before initiating recovery proceedings, it would be incumbent upon the authorities to issue notice to the petitioners under Section 11A of the Act for having either utilized the CENVAT credit wrongly for bringing such action within the scope of sub-rule (3A) or to construe such transaction as having cleared the goods without payment of duty or in other words, such belated utilization of CENVAT credit for payment of central excise duty to be construed as one in contravention of sub-rule (3A) of Rule 8 - Court is of the view that impugned notices cannot be sustained as it is contrary to Rule 14 of CENVAT Credit Rules, 2004, and in violation of natural justice. - Decided in favour of assessee.

Summary

Issues:
Interpretation of Rule 8(3A) of Central Excise Rules, 2002 regarding default in payment of duty beyond 30 days from the due date.

Detailed Analysis:

Issue 1: Interpretation of Rule 8(3A) of Central Excise Rules, 2002
The primary issue in this case revolves around the interpretation of Rule 8(3A) of the Central Excise Rules, 2002, concerning default in payment of duty beyond 30 days from the due date. The petitioners in both cases had allegedly failed to pay central excise duty within the prescribed period, leading to the issuance of recovery notices by the respondent authorities. The contention of the petitioners was that recovery proceedings could not be initiated without following the proper course of issuing notices under Rule 14 of the CENVAT Credit Rules, 2004. They argued that the impugned notices should be quashed, citing a judgment of the Gujarat High Court where Rule 8(3A) was declared ultra vires.

Issue 2: Applicability of Rule 14 of CENVAT Credit Rules, 2004
The Court delved into the applicability of Rule 14 of the CENVAT Credit Rules, 2004, which deals with the recovery of CENVAT credit wrongly taken or erroneously refunded. It was highlighted that before initiating recovery proceedings, authorities must issue notices to the petitioners under Section 11A of the Act if CENVAT credit has been utilized wrongly. The principle of audi alteram partem, ensuring both sides are heard, was emphasized in cases of alleged belated utilization of CENVAT credit for payment of central excise duty. The Court opined that the impugned notices could not be sustained as they contravened Rule 14 of the CENVAT Credit Rules, 2004, and violated principles of natural justice.

Conclusion:
In conclusion, the Court allowed the writ petitions, quashed the recovery notices, and permitted the respondents to issue proper notices to the petitioners in accordance with Section 11, 11A, and 11B of the Central Excise Act, 1944, read with Rule 14 of the CENVAT Credit Rules 2004. The judgment emphasized the importance of following due process and principles of natural justice in matters of recovery of excise duty and CENVAT credit, ensuring fairness and procedural correctness in legal proceedings.