2014 (9) TMI 663 - AT - Central Excise

Wrongful availment of CENVAT Credit - Duty paid utilizing credit - Revenue contend that duty should have been paid consignment wise without utilization CENVAT Credit - Held that - period of default exceeded 30 days from the due date only in respect of May 10, June 10, July 10, Aug. 10 & Sept. 10 and it is in respect of the default periods beyond 30 days from the due date that the provision of Rule 8(3A) would be attracted. There is, however, no dispute that duty for these months has been paid through PLA along with interest for the period of delay. Oce the defaulted amount of duty is paid with interest, the duty payment made through Cenvat Credit during forfeiture period become good payment, even if it is paid before the date on which the default amount has been paid and it is not necessary to ask the assessee to pay the same duty in cash and take re-credit of the equivalent amount debited in the Cenvat Credit Account earlier. Requirement of Rule 8(3A) operates notwithstanding anything contained in sub-rule (1) and sub-rule (4) of Rule 3 of Cenvat Credit Rules, 2004 and when the failure to discharge duty liability for a particular month continues beyond a period of 30 days from the due date, during that period, in accordance with the provisions of Rule 8(3A), duty on the goods cleared would be required to be paid consignment-wise and without utilizing the Cenvat Credit. For the period of default in discharge of monthly duty liability beyond 30 days from the due date, duty on clearances made during the forfeiture period, would be required to be paid through PLA and if the duty had been paid through Cenvat Credit, the same would be required to be paid through PLA by permitting the re-credit of the amount debited in Cenvat Credit amount. Moreover, from the language of Rule 8(3A), it is clear that it is a non obstante provision which operates notwithstanding anything contained in sub-rule (1) & sub-rule (4) of Rule 3 of the Cenvat Credit Rules, 2004 and hence provisions of this sub-rule will have overriding effect over the provisions of the Cenvat Credit Rules, 2004. The total duty paid through Cenvat Credit during the forfeiture period to which the provision of Rule 8(3A) would apply, appears to be much less than ₹ 13,39,225/-, as in respect of in the months of April 10, Oct. 10 and Nov. 10, the period of delay in discharge of duty liability was within 30 days from the due date. In view of this, I direct the appellant to pay an amount of ₹ 6 Lakh through PLA in addition to payment of ₹ 5,000/- towards the penalty for compliance with the provision of Section 35F. No interest on the amount of ₹ 6 lakh is payable. Once the amount of duty of ₹ 6 Lakh is paid through PLA, the appellant would be eligible for re-credit of the equivalent amount in the Cenvat Credit which had earlier been debited by them. Decided partly in favour of assessee.

Summary

Issues Involved:
1. Whether the defaulted amount is to be paid through PLA or can be adjusted against Cenvat credit.
2. Imposition of penalty under Rule 25 read with Section 11AC or Rule 27 of Cenvat Credit Rules.

Issue-wise Detailed Analysis:

1. Payment of Defaulted Amount:
The appellant defaulted in payment of duty during October 2010 to November 2010. The short payment was later made through PLA. However, for subsequent periods, the appellant continued to clear goods by debiting duty from the Cenvat credit account. The Revenue contended that under Rule 8, the appellant should have paid duty from PLA instead of utilizing the Cenvat credit account, leading to a demand of Rs. 13,39,225/- along with interest and a penalty of Rs. 2,25,000/-.

The Tribunal referenced several decisions, including *Solar Chemferts Pvt. Ltd. v. Commissioner* and *F.S. Engineers v. CCE, Ahmedabad*, which held that utilizing Cenvat credit during default results in revenue loss only to the extent of interest. The Tribunal found that the utilization of Cenvat credit during the default period results only in interest loss to the Revenue.

However, a separate order by one member emphasized the legal provisions under Rule 8(3A) of the Central Excise Rules, 2002, which mandates that if the default in payment continues beyond thirty days, the duty must be paid consignment-wise through PLA without utilizing Cenvat credit. This interpretation was supported by the Gujarat High Court in *Commissioner of Central Excise v. Harish Silk Industries*, which clarified that during the forfeiture period, duty must be paid through PLA.

2. Imposition of Penalty:
Regarding the penalty, the Tribunal noted that the issue had been settled by the Gujarat High Court in *CCE v. Saurashtra Cement Ltd.*, which dismissed the Revenue's appeal against the Tribunal's order. The Tribunal decided that only a penalty under Rule 27, which prescribes a maximum penalty of Rs. 5,000/-, was applicable. The Tribunal granted a waiver of the deposit of duty already paid through Cenvat credit and directed the appellant to deposit Rs. 5,000/- towards the penalty.

Majority Decision:
The majority decision required the appellant to deposit Rs. 6,00,000/- through PLA within eight weeks for compliance with Section 35F, after which they would be entitled to recredit the equivalent amount in their Cenvat credit account. This decision was based on the interpretation that during the default period, duty must be paid through PLA, not Cenvat credit.

Conclusion:
The Tribunal's judgment addressed two primary issues: the method of payment for defaulted duty and the imposition of penalties. The decision emphasized compliance with Rule 8(3A) of the Central Excise Rules, requiring payment through PLA during the default period and limited the penalty to Rs. 5,000/- under Rule 27. The majority decision mandated a deposit of Rs. 6,00,000/- through PLA, aligning with the legal provisions and higher court interpretations.