2024 (8) TMI 1206 - AT - Central Excise

Requirement of pre-deposit under Section 35F of Central Excise Act, 1944 - Invocation of Section 11D of Central Excise Act, 1944 for recovery of amount - It is submitted that the allegation in the SCN is that the appellant collected an amount of Rs.1 crore by raising supplementary invoices by representing the amount as excise duty only for the purpose of passing on the burden of predeposit so as to facilitate M/s.Renold to take the credit. HELD THAT - When the assessee fails to deposit with the Central Government the duties of excise or any amount collected representing excise duty has to deposit it to the Government. In other words, if an assessee collects excise duty or any amount representing excise duty cannot retain it. For eg -- if an assessee wrongly collects central excise duty on exempted goods has to deposit the amount collected as duty with the Government. If not paid to Government, Section 11D can be invoked to recover such amount. In the instant case, the appellant has made predeposit of Rs.1 crore and later issued supplementary invoices passing on the burden of the duty paid by them as predeposit to M/s.Renold. The deposit made by them is still with the Government. The appeal in which they had made the predeposit has attained finality wherein the demand, interest and penalties have been entirely set aside on merits as well as on issue of limitation. Consequently, the appellant would be eligible for refund of predeposit of Rs. 1 crore made by them. The appellant has not applied for refund and does not intend to claim refund of the predeposit made. The intention of predeposit is to protect the revenue involved in the appeal and making the recovery of the demand easy and hassle free in case the demand is confirmed in favour of Revenue. The amount is deposited with the Central Government towards the demand impugned in the appeal. In case the demand is confirmed the deposit attains the character of duty / tax and is recovered / adjusted. There is no requirement of further recovery proceedings in regard to predeposit. On the contrary, when the demand is set aside, an assessee can obtain refund of the predeposit. The assessee need not take the course of Section 11B of Central Excise Act, 1944, to obtain refund of predeposit. A mere request letter would be sufficient. The restrictions of time bar and unjust enrichment are not applicable for refund of predeposit making it easy and hassle free. This is because the predeposit is just an amount deposited. It would thus appear that predeposit is of a flexible nature. The demand raised in the SCN is invoking Section 11D and not invoking Rule 14 of Cenvat Credit Rules, 2004. The confirmation of demand under Section 11D cannot be on the allegation that the appellant has facilitated availment of ineligible cenvat credit. Section 11D will be applicable only when the Central Excise duty is collected but not deposited with the Government or any amount representing Central Excise is collected and not deposited with the Government. The impugned order is set aside - The appeal is allowed.

Issues Involved:
1. Liability to pay Central Excise duty on finished goods and cenvat credit on capital goods, inputs, and work-in-progress upon sale of the Industrial Chain Division.
2. Alleged misuse of predeposit amount under Section 35F of the Central Excise Act, 1944.
3. Validity of supplementary invoices issued by the appellant.
4. Applicability of Section 11D of the Central Excise Act, 1944.
5. Imposition of penalty under Rule 26 (2) of the Central Excise Rules, 2002.

Detailed Analysis:

1. Liability to Pay Central Excise Duty:
The appellant, engaged in manufacturing steel products, sold their Industrial Chain Division to M/s. Renold Chain India Pvt. Ltd. on 29.09.2008. The Department issued a show cause notice on 17.09.2009 demanding Central Excise duty on finished goods in stock and cenvat credit on capital goods, inputs, and work-in-progress, considering these as removed to M/s. Renold. The original authority confirmed the demand of Rs. 3,47,72,428/- along with interest and penalty.

2. Alleged Misuse of Predeposit:
After the Tribunal directed the appellant to make a predeposit of Rs. 1 crore, the appellant issued supplementary invoices to M/s. Renold, which seemed to facilitate M/s. Renold in taking cenvat credit of the predeposit amount. The Department alleged that this amounted to a double use of the Rs. 1 crore predeposit, contravening Section 35F of the Central Excise Act, 1944.

3. Validity of Supplementary Invoices:
The appellant issued supplementary invoices showing a nominal product value and excise duty, which the Department argued were not valid documents for taking cenvat credit under Rule 9 (1) (b) of CCR 2004. The Department contended that these invoices were issued without actual delivery of goods, solely to pass on the predeposit burden.

4. Applicability of Section 11D:
The Department invoked Section 11D of the Central Excise Act, 1944, alleging that the appellant collected an amount representing excise duty and did not deposit it with the Government. However, the appellant argued that the predeposit was already with the Government and not retained by them. The Tribunal noted that the predeposit is flexible and meant to safeguard revenue during appeals. Since the demand was set aside in the final order, the appellant was eligible for a refund of the predeposit, which they did not claim.

5. Imposition of Penalty:
The Department imposed a penalty under Rule 26 (2) of the Central Excise Rules, 2002, alleging that the appellant facilitated M/s. Renold in availing ineligible credit. The appellant argued that penalties under this rule could only be imposed on natural persons, not corporate entities. The Tribunal observed that no proceedings were initiated against M/s. Renold for ineligible credit and that the demand raised was under Section 11D, not Rule 14 of the Cenvat Credit Rules.

Conclusion:
The Tribunal concluded that the amount of Rs. 1 crore was still with the Government and that the appellant had not misused the predeposit. The confirmation of demand and penalty under Section 11D and Rule 26 (2) could not be sustained since the predeposit was not retained by the appellant and no ineligible credit was availed by M/s. Renold. The appeal was allowed, and the impugned order was set aside.

(Order pronounced in the open court on 27.08.2024)

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