2016 (2) TMI 684 - AT - Central Excise

Discharge the defaulted duty liability using cenvat credit - Held that - The payment by credit which accrued after the impugned period was disputed by the Revenue. In this connection, we find that the Board vide Circular dated 15.12.2003 clarified that the amount of duty outstandings shall be treated as recoverable arrears of revenue and all permissible action under the law including action under Section 11 of the Central Excise Act, 1944 should be taken. Considering this amount, which was liable to be paid, but not paid in time, was later paid by the appellant using partly the credit available in their accounts. In such situation, we find no reason for ordering payment of such amount by cash only and taking re-credit of the debited amount. The assessee s right to use cenvat credit to discharge the central excise duty even during the defaulted period was examined and decided by the Hon ble High Court of Madras in the case of Malladi Drugs & Pharmaceuticals Ltd. 2015 (5) TMI 603 - MADRAS HIGH COURT . The Hon ble High Court observed that right to pay the duty by using cenvat credit that on accrued amount cannot be denied unless it is a case of illegality or irregular credit. Considering the above position, we find no justification for the Revenue to insist on payment of all the dues for the payment of all the defaulted amount by cash only when the appellants have accrued cenvat credit available in their accounts. As pointed out in the impugned order even in case of payment by cash, the debit already made by the appellant, is to be restored. As such, we find the present impugned order is not sustainable - Decided in favour of assessee

Summary

Issues:
- Discharge of defaulted duty liability using cenvat credit
- Applicability of Rule 3(4) of the Cenvat Credit Rules, 2004
- Validity of using cenvat credit for duty payment
- Interpretation of Circular dated 15.12.2003
- Right to use cenvat credit during defaulted period

Analysis:
The case involved an appeal against an order of the Commissioner of Central Excise, Indore, regarding the discharge of central excise duty by a steel tubes manufacturer. The manufacturer had defaulted in paying duty for the period April 2005 to July 2005, leading to a total outstanding amount of &8377; 79,10,841. The manufacturer paid &8377; 28,64,774 through cash deposit and &8377; 50,46,067 through debiting cenvat credit account. The Original Authority confirmed the demand to be paid in cash and imposed a penalty of &8377; 1,00,000.

The appellant contended that they had fully paid the defaulted amount through debit entries in their cenvat credit account, arguing that the provisions invoked by the Revenue were not applicable as they were paying an arrear to the Government. The appellant highlighted that the duty, which was defaulted, had been correctly paid by them using cenvat credit, which was permissible in this case.

The Revenue, however, maintained that the credit accrued during a later period could not be used to discharge duty from an earlier period. After hearing both sides, the Tribunal examined the appeal records to determine whether the appellant could discharge the defaulted duty liability using cenvat credit. The Tribunal referred to a Board Circular clarifying that duty outstandings should be treated as recoverable arrears of revenue.

The Tribunal also cited a judgment by the Hon'ble High Court of Madras in a similar case, where it was observed that the right to pay duty using cenvat credit on accrued amounts cannot be denied unless there are issues of illegality or irregular credit. Based on this, the Tribunal found no justification for the Revenue to insist on cash payment when the appellant had accrued cenvat credit available in their accounts. The Tribunal concluded that the impugned order was not sustainable and allowed the appeal.