2012 (12) TMI 856 - HC - Central Excise

Demand u/s 11D - Reversal of cenvat credit and collected the same from the purchasers - The Department was of the opinion that the entire transaction was irregular, was in breach of the Cenvat Credit Rules, as applicable from time to time. As per Section 11D of the Central Excise Act, therefore, the respondent was liable to refund such amount. - Held that - The view of the Tribunal that in any case the respondent could have encashed the unutilized credit in the Cenvat account and that therefore the same did not make any difference to the Department, in our view, suffers from fallacy. Firstly, as noted, Rule 5 of the Rules, 2004 permitted refund of Cenvat credit under certain circumstances which provides that such refund shall be allowed subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification. It can, thus, be seen that grant of refund is neither automatic nor a matter of course. Nothing has been brought on record to suggest that the respondent was entitled to such refund as a matter of right. Secondly, utilization of Cenvat credit for the purpose of payment of unauthorizedly collected so called excise duty was not permissible under the Rules. The contention of the Department that by doing so, the respondent passed on Cenvat credit to the purchaser to be availed by them ultimately which credit such purchasers were not entitled to, cannot be brushed aside. Regarding period of limitation - held that - Section 11D of the Central Excise Act does not provide any rigid time limit. In such cases, as so long as the recovery proceedings are initiated within reasonable time, the same cannot be struck down only as time-barred. Demand u/s 11D confirmed - Order of Tribunal reversed - Decided in favor of revenue and against the assessee.

Issues Involved:

1. Applicability of Section 11D of the Central Excise Act, 1944.
2. Validity of duty payment through Cenvat Credit as per Section 11D.
3. Alleged breach of Cenvat Credit Rules by the respondent.
4. Recovery of differential duty amount and interest.
5. Imposition of penalty under Rule 13 of Cenvat Credit Rules, 2002/Rule 15 of Cenvat Credit Rules, 2004.
6. Limitation period for initiating recovery proceedings.

Detailed Analysis:

1. Applicability of Section 11D of the Central Excise Act, 1944:

The Tribunal held that Section 11D did not apply as the duty collected was deposited with the Government by making a debit entry in the Cenvat credit account. However, the High Court disagreed, stating that since no manufacturing activity was undertaken, the goods removed on an "as such" basis were not exigible to excise duty. Therefore, the respondent could not collect any charge as excise duty. The collected amount had to be deposited with the Central Government as per Section 11D.

2. Validity of Duty Payment through Cenvat Credit as per Section 11D:

The Tribunal opined that payment through Cenvat credit is valid. The High Court, however, emphasized that utilization of Cenvat credit for unauthorizedly collected excise duty was impermissible under the Rules. The duty collected in excess or as representing excise duty had to be paid to the Central Government forthwith, which was not done by the respondent.

3. Alleged Breach of Cenvat Credit Rules by the Respondent:

The Department alleged that the respondent cleared goods without manufacturing activity at an inflated price and collected duty in the guise of excise duty. The High Court found merit in the Department's contention, noting that the respondent did not follow the procedure laid down in Rule 3(4) of the Rules, 2002 and Rule 3(5) of the Rules, 2004. The collected amount was deposited as Cenvat credit, which was not permissible.

4. Recovery of Differential Duty Amount and Interest:

The Commissioner confirmed the duty demand and ordered recovery of Rs. 2,05,33,931/- with interest. The High Court upheld this decision, stating that the collected amount representing excise duty had to be deposited with the Central Government under Section 11D. The Tribunal's view that the respondent could have encashed the unutilized credit was deemed fallacious.

5. Imposition of Penalty under Rule 13 of Cenvat Credit Rules, 2002/Rule 15 of Cenvat Credit Rules, 2004:

The Commissioner imposed a consolidated penalty of Rs. 5 lacs for breach of rules with an ulterior motive. The High Court upheld the penalty, noting the large number of transactions and the maximum penalty of Rs. 10,000/- per transaction. The Tribunal's decision to drop the penalty was overturned.

6. Limitation Period for Initiating Recovery Proceedings:

The respondent argued that the proceedings were barred by limitation. The High Court noted that Section 11D does not provide a rigid time limit, and as long as recovery proceedings are initiated within a reasonable time, they cannot be struck down as time-barred. The High Court found no evidence of undue delay by the Department in raising the demand.

Conclusion:

The High Court allowed the appeal, reversed the Tribunal's judgment, and restored the Commissioner's order. The questions were answered in favor of the Department and against the respondent. The collected amount had to be deposited with the Central Government, and the penalty imposed was justified.

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