2014 (3) TMI 349 - AT - Central Excise

Availment of CENVAT Credit - Availment after default - whether the credit accumulated during defaulting period could be used for paying duty after coming out of default - Held that - During the defaulting period there is no bar on taking credit. There is bar only on utilization of credit. Whenever a demand is confirmed against an assessee, the assessee can pay the duty liability through cash or CENVAT credit so long as there is no specific prohibition against such payment through CENVAT credit. Such prohibition exists as per Rule 8(3A) only when the assessee is in default. Once they come out of the default by paying the defaulted amounts in cash, they can pay the duty liability using CENVAT credit. The fact that they had used it prior to coming out of default can result in payment of interest on such amount and no demand on such amount again - At any rate, it is obvious that there will be some interest liability on the applicant since the duty paid through Cenvat credit during defaulting period cannot be taken as proper discharge of duty. This interest amount is not seen quantified. Further a penalty also is payable - Conditional stay granted.

Summary

Issues: Default in payment of excise duty, payment through cash or CENVAT credit, conflicting decisions on payment mode, interest and penalty imposition.

In this case, the applicant defaulted in payment of excise duty from September 2008 to November 2008, although they filed returns indicating duty liability. The defaulters were required to pay excise duty only through cash as per Rule 8(3A) of Central Excise Rules, 2002. However, they paid duty liability partly through cash and partly through CENVAT credit. The revenue issued a show-cause notice demanding the portion of duty paid through CENVAT credit to be paid through cash along with interest and penalty.

The applicant argued that their factory was closed, and paying in cash would cause financial hardship. They mentioned that after paying in cash, the refund of CENVAT credit utilized during the defaulting period would be due, but it would not be useful as their factory was closed. They relied on Tribunal decisions like Solar Chemferts Pvt. Ltd. and Baba Viswakarma Engg. Co. (P) Ltd., suggesting that only interest needed to be paid on CENVAT credit utilized during the defaulting period.

On the other hand, the Revenue contended that the rule mandated duty liability to be paid in PLA when the assessee defaulted, thus supporting the demand for predeposit of entire dues. They cited various decisions like Precision Fasteners Ltd., Paras Lubricants Ltd., and others to bolster their argument.

The Tribunal noted conflicting decisions on the issue. It highlighted that during the defaulting period, there was no bar on taking credit, only on its utilization. The view was divided between whether duty payment had to be made in PLA as per the rule or if CENVAT credit could be used after coming out of default. The Tribunal emphasized that interest liability would exist on duty paid through CENVAT credit during the defaulting period. A penalty was also deemed payable. Consequently, the Tribunal directed the applicant to predeposit Rs.50,000 within four weeks for appeal admission, with the remaining dues predeposit waived and collection stayed during the appeal's pendency.