2014 (8) TMI 292 - AT - Central Excise

Waiver of pre deposit - Default of payment of duty in terms of Rule 8 in the month of October, 2008 - subsequent clearances were effected on payment of duty partly through Cenvat credit and partly through PLA - short paid duty for the month of October, 2008 was ultimately made good in December, 2009 - Imposition of interest and penalty - Difference of opinion - Majority order - Held that - The provision of Rule 8(3A) of Rules were before the Hon ble Madras High Court in the case of Unirols Airtex (2013 (12) TMI 1398 - MADRAS HIGH COURT) and before the Hon ble High Court in the case of Harish Industries (2013 (6) TMI 83 - GUJARAT HIGH COURT). While interpreting this provision, the Hon ble High Court, held that in the case of default of payment of duty on due date, the manufacturer has to clear the goods on consignment basis by making duty from PLA. In view of the above, decision of the Hon ble High, the prima facie, the applicants had not made out a strong case for waiver of pre-deposit of duty. In respect of the pre-deposit of penalty which is imposed under Section 11AC, the Hon ble Gujarat High Court in the case of C.C.E. & Customs vs. Saurashtra Cement Ltd. reported in 2010 (9) TMI 422 - GUJARAT HIGH COURT held that in such case, the penalty is imposable under Rule 27 of the Central Excise Rules, 2002 which is restricted upto ₹ 5,000/-. In view of the majority order, the appellant is directed to make pre-deposit of ₹ 20,07,725/- (Rupees twenty lakh seven thousand seven hundred twentyfive only) along with deposit of penalty of ₹ 5,000/- (Rupees five thousand only) as a condition of hearing of their appeal - stay granted partly.

Summary

Issues Involved:
1. Default in payment of duty and subsequent utilization of Cenvat credit.
2. Interest and penalty imposed for the default period.
3. Legal interpretation of Rule 8(3A) of the Central Excise Rules, 2002.
4. Whether the duty should be paid through PLA (Personal Ledger Account) or Cenvat credit during the default period.
5. Appropriate penalty under Rule 25 or Rule 27.

Detailed Analysis:

1. Default in Payment of Duty and Utilization of Cenvat Credit:
The appellants defaulted in the payment of duty in October 2008 and continued to clear goods using Cenvat credit and PLA until December 2009. The short-paid duty for October 2008 was eventually settled in December 2009. The revenue argued that the use of Cenvat credit during the default period was not permissible, leading to proceedings and the impugned orders.

2. Interest and Penalty Imposed:
The Commissioner confirmed a duty demand of Rs. 20.07 lakhs, which was paid using Cenvat credit. Additionally, an interest and penalty of Rs. 39.67 lakhs were imposed under Section 11AC. The Tribunal, referencing multiple decisions, held that payment of duty from the Cenvat credit account during the default period does not result in revenue loss, except for interest. Therefore, the assessee was required to pay interest, and penalties were to be governed by Rule 27.

3. Legal Interpretation of Rule 8(3A) of Central Excise Rules, 2002:
The Tribunal noted that Rule 8(3A) mandates payment of duty for each consignment at the time of removal without utilizing Cenvat credit until the outstanding amount, including interest, is paid. This was supported by judgments from the Gujarat High Court in Harsh Silk Industries and the Madras High Court in Unirols Airtex, which held that duty must be paid through PLA during the default period.

4. Payment of Duty Through PLA or Cenvat Credit:
The Member (Judicial) relied on the Gujarat High Court's judgment in Saurashtra Cement Ltd., which allowed payment through Cenvat credit, arguing no revenue loss except for interest. However, the Member (Technical) disagreed, citing Rule 8(3A) and recent judgments that mandate payment through PLA. The Vice President agreed with the Technical Member, requiring the appellant to deposit Rs. 20.07 lakhs in cash.

5. Appropriate Penalty Under Rule 25 or Rule 27:
The Member (Judicial) suggested a penalty of Rs. 5,000 based on the Gujarat High Court's judgment in Saurashtra Cement Ltd. Conversely, the Member (Technical) argued for a higher penalty due to clear defaults and suppression of facts, invoking Rule 25 read with Section 11AC. The Vice President concurred with the Judicial Member for a penalty of Rs. 5,000, referencing the Gujarat High Court's decision.

Final Order:
The appellant was directed to pre-deposit Rs. 20,07,725 along with a penalty of Rs. 5,000 within 8 weeks for the hearing of their appeal. The matter was scheduled for compliance reporting.