2014 (9) TMI 657 - AT - Central Excise

Delayed payment of duty - Utilization of CENVAT Credit - Interest u/s 11AB - Penalty u/s 11AC - Held that - When an assessee defaults in payment of duty and if the default continues for a period beyond 30 days from the due date, then the assessee has to pay excise duty for each consignment at the time of removal, without utilizing the Cenvat Credit till the date the assessee pays the outstanding amount including interest thereon. Therefore, the duty demand is not in respect of defaulted amount but in respect of the goods cleared subsequently during the default period. As per the show-cause notice, during default period the assessee cleared the goods on which duty liability was ₹ 13,43,70,590/-/. Out of this amount the assessee discharged duty liability to the extent of ₹ 2,38,10,905/- through PLA and ₹ 11,05,59,585/- through Cenvat Credit account. The discharge of duty liability through Cenvat Credit account during the period of default is clearly prohibited under Rule 8 (3A). Therefore, this amount should have been made good by the assessee by paying it in cash along with interest for the delayed payment and thereafter, the assessee should have been allowed to take re-credit of this amount in the Cenvat Credit Account inasmuch as debits have been made to the equivalent extent in the Cenvat Credit account. In the case of defaults, the prohibition under Rule 8 (3A) for utilizing Cenvat Credit account is not with reference to the arrears but to the entire credit lying in the account and therefore the assesse has to pay excise duty through account current for each consignment at the time of removal. Since the Cenvat Credit was unavailable, utilizing the same for payment of duty was an exercise in nullity and could not be recognized as payment towards duty. in respect of goods cleared subsequently, the appellant did not discharge the excise duty liability through PLA account. Therefore, there was non/short payment of duty. Once there is a short payment of duty, the same ought to be recovered invoking the provisions of Section 11A of the Act. Once the provisions of Section 11A comes into picture, and the demand is sustainable under the said section, the liability to pay interest under Section 11AB shall also arise. Therefore, there is no merit in the contention of the appellant that the provisions of Section 11A or 11AB will not come into picture at all. However, in the instant case, we observe that the adjudicating authority has committed an error by holding that the payment made through Cenvat Credit account during the default period is sufficient which is not what the law mandates. matter remanded back for fresh consideration - Decided in favour of assessee.

Issues Involved:
1. Default in payment of Central Excise duty.
2. Applicability of Rule 8 (3A) of Central Excise Rules, 2002.
3. Demand of duty and interest under Section 11A and 11AB of Central Excise Act, 1944.
4. Imposition of penalty under Rule 25 of Central Excise Rules, 2002.
5. Appropriation of amounts paid through PLA and Cenvat Credit Account.
6. Validity of the Settlement Commission's order.

Issue-wise Detailed Analysis:

1. Default in Payment of Central Excise Duty:
The appellant, M/s. CSPL, defaulted in paying Central Excise duty amounting to Rs. 4,18,97,700/- for September 2008. This default was rectified only on 07/04/2011 when the premises were searched by DFCEI officers. The appellant paid the defaulted duty along with interest amounting to Rs. 1,28,22,375/- on 07/04/2011. The adjudicating authority confirmed a duty demand of Rs. 13,43,70,490/- under Rule 8 (3A) of the Central Excise Rules, 2002, read with Section 11A(4) of the Central Excise Act, 1944.

2. Applicability of Rule 8 (3A) of Central Excise Rules, 2002:
Rule 8 (3A) stipulates that if an assessee defaults in payment of duty and the default continues beyond 30 days, the assessee must pay excise duty for each consignment at the time of removal without utilizing the Cenvat Credit until the outstanding amount, including interest, is paid. The show-cause notice issued on 09/02/2012 proposed to demand excise duty of Rs. 13,43,70,490/- under this rule, appropriating the amount already deposited.

3. Demand of Duty and Interest under Section 11A and 11AB of Central Excise Act, 1944:
The appellant contended that Rule 8 (3A) is a complete code in itself and does not necessitate demands under Section 11A or interest under Section 11AB. However, the adjudicating authority held that the prohibition on utilizing the Cenvat Credit account during the default period necessitated the recovery of duty through cash payment, invoking Section 11A, and the interest liability under Section 11AB.

4. Imposition of Penalty under Rule 25 of Central Excise Rules, 2002:
A penalty of Rs. 50 lakhs was imposed on M/s. CSPL under Rule 25 of the Central Excise Rules, 2002. The appellant argued that since the case involved legally inappropriate discharge of duty rather than complete non-payment or clandestine removal, the imposition of penalty was unwarranted.

5. Appropriation of Amounts Paid through PLA and Cenvat Credit Account:
The adjudicating authority appropriated amounts paid through the PLA and Cenvat Credit account. However, it was noted that the appellant cleared goods during the default period, where duty liability was Rs. 13,43,70,590/-, out of which Rs. 2,38,10,905/- was paid through PLA and Rs. 11,05,59,585/- through Cenvat Credit. The utilization of Cenvat Credit during the default period was prohibited, and the duty should have been paid in cash.

6. Validity of the Settlement Commission's Order:
The appellant approached the Settlement Commission, which settled the issue and imposed a penalty of Rs. 12 lakhs on the appellant and Rs. 3 lakhs on the co-appellant. The Settlement Commission granted immunity from prosecution under the Central Excise Act, 1944. However, the appellant did not press the decision of the Settlement Commission during the appeal.

Conclusion:
The Tribunal concluded that the adjudicating authority erred in allowing duty payment through the Cenvat Credit account during the default period, which was prohibited under Rule 8 (3A). The matter was remanded back to the adjudicating authority for fresh consideration and to pass an order in accordance with the law, quantifying the duty demand to be paid in cash and the interest liability on delayed payment. The appeal was allowed by way of remand, ensuring the appellant's right to be heard before the fresh order is passed.

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