2007 (7) TMI 327 - AT - Central Excise

Interest and penalty - Whether an assessee during the period of forfeiture of facility for payment of duty on fortnightly basis is required to pay duty out of the PLA and whether failure on his part to do so would attract interest and penal provisions or not? - Held that - the provisions of Rule 8(4) are pari materia with Rule 173G(1)(e) and the non-obstantive clause was introduced by insertion of sub-rule 3A in Rule 8 of the Central Excise Rules 2002 only w.e.f. 31-3-2005 while the period in dispute in the present case is prior to that date - during the period of forfeiture of the facility of payment of duty on fortnightly basis an assessee can discharge duty liability either out of PLA or by utilising Cenvat credit and failure on his part to do so would not attract interest and penalty and answer the reference in the negative - decided in favor of assessee.

Issues:
Whether an assessee during the period of forfeiture of facility for payment of duty on fortnightly basis is required to pay duty out of the PLA and whether failure to do so would attract interest and penal provisions or not.

Analysis:
The issue at hand was whether an assessee, during the period of forfeiture of the facility for payment of duty on a fortnightly basis, is obligated to pay duty out of the PLA and whether the failure to do so would result in attracting interest and penal provisions. The Tribunal referred to a judgment by the Hon'ble Kerala High Court in the case of Thanikkudam Bhagawati Mills Ltd. v. CCE, Calicut, which held that an assessee is entitled to avail the benefit of Rule 3 of the Cenvat Credit Rules for discharging duty on a consignment basis after default and consequent forfeiture of the facility of payment of duty on a fortnightly basis under Rule 173G(e). The Court emphasized that an assessee can utilize the input credit for discharging duty liability on final goods as provided for in the rules. The Tribunal noted that the provisions of Rule 8(4) are similar to Rule 173G(1)(e), and the non-obstantive clause was introduced by inserting sub-rule 3A in Rule 8 of the Central Excise Rules, 2002, only from 31-3-2005, which was after the period in dispute in the present case. Therefore, the Tribunal held that during the period of forfeiture of the facility of payment of duty on a fortnightly basis, an assessee can discharge duty liability either out of PLA or by utilizing Cenvat credit, and failure to do so would not attract interest and penalty.

The Tribunal highlighted that Rule 173G(1)(b) acknowledges the payment utilizing Cenvat credit as an approved method of paying duty, and even without this provision, an assessee has the right to utilize the input credit under Rule 49 read with Rule 57A. The Tribunal emphasized that unless there is an amendment to Rule 49 or Rule 57A, the consequences of making an assessee a defaulter and denying them the benefit of utilizing the input credit would be ineffective. The Tribunal noted that a non-obstantive clause was added for the first time through the Central Excise Rules, 2002 - second amendment 2005, to take away the benefit under the Cenvat Credit Rules during the suspended period, requiring duty payment by debit to the account current only. Until this amendment, the Tribunal stressed that recognizing payment of duty only through an open current account during the suspended period does not negate the benefit conferred by a separate rule allowing the utilization of input credit for duty payment.

In conclusion, the Tribunal ruled in favor of the assessee, following the precedent set by the Kerala High Court's judgment, and held that during the period of forfeiture of the facility for payment of duty on a fortnightly basis, an assessee can choose to discharge duty liability out of PLA or by utilizing Cenvat credit without attracting interest and penalties. The papers were returned to the referral Bench for further orders on the appeals.

← Previous Next →