2023 (4) TMI 1388 - AT - Central Excise

Discharge of Central Excise duty liability under Section 3 of the Central Excise Act, 1944, instead of Section 3A - application of the provisions of Section 3 and 3A of Central Excise Act, 1944 - entitlement to avail CENVAT/MODVAT credit on inputs used in the manufacture of goods notified under Section 3A of the Act - levy of penalty - extended period of limitation. Discharge of Central Excise duty liability under Section 3 of the Central Excise Act, 1944, instead of Section 3A - application of the provisions of Section 3 and 3A of Central Excise Act, 1944 - CENVAT Credit - HELD THAT - The Appellant had worked and paid Central Excise duty pursuant to the clarifications/orders issued by the Commissioner from time to time. Further, the show cause notices had been issued based on the Appellant s records relating to manufacture and clearance of final products. The entire case for denial of MODVAT/CENVAT had been set up in the show cause notices on the ground that the Appellant had incorrectly paid under Section 3 of the Act instead of 3A thereof - Notification No. 33/97-CE(NT) dated 01.08.1997 and Notification No. 34/97-CE(NT) dated 01.08.1997 imposing restriction on MODVAT availment in respect of goods liable to duty under Section 3A of the Act had no application in the given facts and circumstances. Accordingly there remains no justification for supporting the purported conclusions drawn by the Commissioner that the Appellant should have paid duty under Section 3 of the Act and that it had irregularly availed MODAT/CENVAT on the inputs used in or in relation to the notified final products. Extended period of limitation - HELD THAT - There is no material on record to substantiate the charge warranting invocation of extended period of limitation - there are no ingredients for attracting extended period of limitation in terms of Rule 11A of the Act/Rule 57I of the Rules. Penalty - HELD THAT - The imposition of penalty under Rule 173Q and Rule 57I of the Rules and Section 11AC of the Act are set aside - in view of the judgement of the Hon ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills v. Commissioner of Central Excise 2015 (11) TMI 1172 - SUPREME COURT no penalty could have been imposed under the proviso to Rule 96ZO(3) of the Rules and Rule 96ZP thereof. Conclusion - i) Notification No. 33/97-CE(NT) dated 01.08.1997 and Notification No. 34/97-CE(NT) dated 01.08.1997 imposing restriction on MODVAT availment in respect of goods liable to duty under Section 3A of the Act had no application in the given facts and circumstances. ii) There are no ingredients for attracting extended period of limitation in terms of Rule 11A of the Act/Rule 57I of the Rules. iii) The imposition of penalty under Rule 173Q and Rule 57I of the Rules and Section 11AC of the Act are set aside. The impugned order cannot be sustained and is accordingly set aside - Appeal allowed.

2025 (1) TMI 306 - HC

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal questions:

Whether the Appellant was correct in discharging its Central Excise duty liability under Section 3 of the Central Excise Act, 1944, instead of Section 3A, for the period in question.
Whether the Appellant was entitled to avail CENVAT/MODVAT credit on inputs used in the manufacture of goods notified under Section 3A of the Act.
Whether the imposition of penalties under various provisions of the Central Excise Act and Rules was justified.
Whether the extended period of limitation for recovery of duties and penalties was applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Discharge of Duty Liability under Section 3 vs. Section 3A

Relevant Legal Framework and Precedents: The case hinges on the interpretation of Sections 3 and 3A of the Central Excise Act, 1944. Section 3A pertains to the compounded levy scheme applicable to certain goods, while Section 3 is the general provision for excise duty.
Court's Interpretation and Reasoning: The Tribunal found that the Appellant had acted in accordance with permissions granted by the Commissioner of Central Excise, which were neither withdrawn nor challenged. The Appellant had correctly paid duty under Section 3 based on these permissions.
Key Evidence and Findings: The Tribunal noted that the Appellant had received clarifications/orders from the Commissioner allowing duty payment under Section 3, which were not contested by the Department.
Application of Law to Facts: The Tribunal determined that the Appellant's actions were justified based on the permissions and clarifications received, thus the demand for duty under Section 3A was unsustainable.
Treatment of Competing Arguments: The Tribunal rejected the Department's argument that the Appellant was obligated to pay duty under Section 3A, emphasizing the unchallenged permissions.
Conclusions: The Tribunal concluded that the Appellant correctly discharged its duty liability under Section 3 of the Act.

Issue 2: Entitlement to CENVAT/MODVAT Credit

Relevant Legal Framework and Precedents: The entitlement to CENVAT/MODVAT credit is governed by the Central Excise Rules and relevant notifications, particularly Notification Nos. 33/97-CE(NT) and 34/97-CE(NT).
Court's Interpretation and Reasoning: The Tribunal found that the restrictions imposed by the notifications were not applicable to the Appellant's case, given the permissions under Section 3.
Key Evidence and Findings: The Tribunal observed that the show cause notices were based on an incorrect premise regarding the applicability of Section 3A.
Application of Law to Facts: The Tribunal applied the law to the facts, determining that the Appellant rightfully availed CENVAT/MODVAT credit.
Treatment of Competing Arguments: The Tribunal dismissed the Department's claims of irregular credit availment due to the Appellant's compliance with Section 3.
Conclusions: The Tribunal held that the Appellant was entitled to the CENVAT/MODVAT credit claimed.

Issue 3: Imposition of Penalties

Relevant Legal Framework and Precedents: Penalties under Rules 173Q, 57I, and Section 11AC of the Act were considered, alongside the Supreme Court's ruling in Shree Bhagwati Steel Rolling Mills.
Court's Interpretation and Reasoning: The Tribunal referred to the Supreme Court's judgment, which invalidated penalties under Rules 96ZO, 96ZP, and 96ZQ as ultra vires.
Key Evidence and Findings: The Tribunal found no basis for the penalties imposed, given the correct discharge of duty under Section 3.
Application of Law to Facts: The Tribunal applied the Supreme Court's precedent, setting aside the penalties.
Treatment of Competing Arguments: The Tribunal rejected the Department's justification for penalties, aligning with the Supreme Court's reasoning.
Conclusions: The Tribunal set aside all penalties imposed on the Appellant.

Issue 4: Extended Period of Limitation

Relevant Legal Framework and Precedents: The invocation of the extended period of limitation is governed by Section 11A of the Act.
Court's Interpretation and Reasoning: The Tribunal found no material evidence to justify the invocation of the extended period.
Key Evidence and Findings: The Tribunal noted the absence of any substantive evidence of willful misstatement or suppression by the Appellant.
Application of Law to Facts: The Tribunal determined that the extended period was inapplicable, given the settled nature of duty payments under Section 3.
Treatment of Competing Arguments: The Tribunal dismissed the Department's reliance on the extended period due to lack of evidence.
Conclusions: The Tribunal concluded that the extended period of limitation could not be invoked.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "A penalty can only be levied by authority of statutory law, and Section 37 of the Act, as has been extracted above does not expressly authorize the Government to levy penalty higher than Rs. 5,000/-."
Core Principles Established: The Tribunal established that permissions granted by the Commissioner, unless challenged, are binding and that penalties exceeding statutory limits are ultra vires.
Final Determinations on Each Issue: The Tribunal allowed the appeal, set aside the impugned order, and granted consequential relief to the Appellant, affirming the correctness of duty discharge under Section 3 and entitlement to CENVAT/MODVAT credit.

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