2014 (1) TMI 1335 - HC - Central Excise

Demand of duty - Manufacturing activity stopped due to hardship - Inability to pay excise duty - Invocation of Section 11A - Imposition of Compounded levy of tax - Held that - On a perusal of Rule 96ZP of the Rules, it is evidently clear that it is a procedure of self-assessment where the manufacturers of hot re-rolled products falling under the different sub-headings in the Central Excise Tariff Act, are bound to debit the amount calculated at the rate of ₹ 400/- per metric tonne at the time of clearance from the factory in the account-current maintained under Rule 173G(1) of the Central Excise Rules, 1944, and the duty liability is to be complied as detailed in Clauses I and II under Rule 96ZP of the Rules. In terms of sub-rule (1A) of Rule 96ZP, if a manufacturer removes any of the said products without complying with the requirements of that sub-rule, such goods are liable to confiscation and the manufacturer shall be liable to a penalty not exceeding three times the value of goods or ₹ 5,000/-, whichever is greater. Sub-rule 3 of Rule 96ZP starts with a non-obstante clause and in fact, it is a facility given to the manufacturer, by which, the manufacturer, may, in the beginning of each month from 1st day of September, 1997 to 31st day of March, 1998 or any other financial year, pay a sum equivalent at the rate of ₹ 300/- multiplied by the annual capacity in metric tonnes. We term this as a facility in the light of Clause I(a) to Rule 96ZP, which mandates the amount to be paid at the rate of ₹ 400/- per metric tonne by 31st day of March, 1998. Imparting the elements of the scheme of tax administration/recovery under Section 11A to a specially compounded levy scheme as provided under Rule 96ZP, would be wholly arbitrary and it would disturb the very functioning of the special scheme and the time limit prescribed under the special scheme, cannot be done away with by the time limit specified under the normal procedure under Section 11A - assessee had come under the compounded levy scheme with effect from 1997 and when they switched over to this, the credit lying unutilised, be in the inputs or in the final products, lapsed in terms of sub-rule (17) of Rule 57F - assessee has availed the benefit of a specially compounded levy scheme - therefore question of adjustment of the modvat credit as against the liability under Rule 96ZP, does not arise. However, it is open to the assessee to seek for reversal of credit, if any, lying to their credit, if so permitted under law - Following decision of COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY V. SHARADHA CASTINGS (P) LTD. 2009 (4) TMI 525 - MADRAS HIGH COURT - Decided partly in favour of assessee.

Issues Involved:
1. Justification of Tribunal's refusal for adjournment.
2. Applicability of Section 11A of the Central Excise Act, 1944 on demand under Rule 96ZP.
3. Validity of Rule 96ZP and Section 3A as charging provisions and machinery for recovery.
4. Legitimacy of demand for duty post cessation of production.
5. Adjustment of Modvat Credit under compounded levy scheme.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's refusal for adjournment:
The appellant argued that the Tribunal unjustifiably refused their request for adjournment, asserting that they were represented by a Company Secretary instead of a Consultant. The Tribunal proceeded to consider the matter on merits by perusing the records and hearing the departmental representative due to the non-appearance of the appellant's Consultant on multiple occasions.

2. Applicability of Section 11A of the Central Excise Act, 1944 on demand under Rule 96ZP:
The appellant contended that the show cause notices were barred by limitation under Section 11A of the Central Excise Act, 1944. However, the court noted that the demand was made under Rule 96ZP of the Central Excise Rules, 1944 read with Section 11A. The Supreme Court in Hans Steel Rolling Mill clarified that the compounded levy scheme under Rule 96ZP is a separate scheme from the normal excise duty collection and is not governed by Section 11A's time limit. The court held that applying Section 11A's limitation to Rule 96ZP would be arbitrary and disturb the special scheme's functioning.

3. Validity of Rule 96ZP and Section 3A as charging provisions and machinery for recovery:
Rule 96ZP, being a self-assessment procedure, mandates manufacturers to debit the calculated duty amount at the time of clearance. The compounded levy scheme under Rule 96ZP is distinct and comprehensive, excluding general provisions of the Act and Rules. The court emphasized that Section 11A does not apply to recovery under this special scheme, as supported by the Supreme Court's decisions in Hans Steel Rolling Mill and Venus Castings Pvt. Ltd.

4. Legitimacy of demand for duty post cessation of production:
The appellant claimed cessation of production from 1.4.1998, challenging the demand for duty beyond this date. The court considered the Range Officer's report and the appellant's letter, both indicating cessation of production from 1.4.1998. The court accepted these uncontradicted facts, setting aside the Tribunal's order demanding duty for the period from April 1998 to March 1999, amounting to Rs.26,38,800/-.

5. Adjustment of Modvat Credit under compounded levy scheme:
The appellant sought adjustment of Modvat Credit against their liability. The court referred to the Division Bench's decision in Sharadha Castings (P) Ltd., which held that credit lying unutilized lapses when a manufacturer switches to the compounded levy scheme. The court ruled that adjustment of Modvat Credit against liability under Rule 96ZP is not permissible. However, the appellant may seek reversal of credit if allowed under law.

Conclusion:
The appeal was allowed in part. The court set aside the demand for duty from April 1998 to March 1999, while rejecting the appellant's contentions regarding the applicability of Section 11A and adjustment of Modvat Credit under the compounded levy scheme.

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