UTILISED CENVAT CREDIT FOR PAYMENT OF CESS, Central Excise

[RAM NAUDIYAL]

Dear Experts,

Still i have confuse and doubtful in regard to utilisation of cenvat credit for payment of cess. different opinion of various experts in this regards. Pl. clerify. Copy of order enclosed for your reference.

Thanks

Appeal No. V2/380/RAJ/2011 &

Stay Application No. S/200/RAJ/2011

: ORDER ::

The present appeal along with stay application has been filed by M/s. Gallant Metal ltd., Survey No. 176, Near Toll gate, Samakhiyali Bhachau, Dist. Kutchh (hereinafter referred to as appellant) against Order-In-Original No: 16/ADC/2011 dated 30.08.2011 (hereinafter referred to as the impugned order) passed by the Additional Commissioner, Central Excise, Rajkot (hereinafter referred to as Lower Authority).

2. The fact of the case is that during the course of scrutiny of the monthly returns for the period from July’2009 to March’2010, it was noticed that the appellant had utilized the Basic Central Excise duty to the tune of ` 36,71,292/- for payment of Education Cess and Secondary & Higher Education Cess. In view of the provisions contained in Rule 3 (4) of the Cenvat Credit Rules, 2004, the Cenvat credit of basic duty cannot be utilized for payment of Education Cess and Secondary and Higher Education Cess.

3. The above observations culminated into issuance of Show Cause Notice No. V.GND/AR-Khar/G’Dham/ADC/153/10 dated 12.07.2010 which was adjudicated by the Lower Authority vide his impugned order dated 30.08.2011 vide which he disallowed the utilization of Cenvat credit of basic excise duty to the tune of ` 36,71,292/- for payment of Education Cess and Secondary and Higher Education Cess and has ordered to recover the same through account.

current /PLA under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A and confirmed the charging of interest at appropriate rate payable under Section 11 AB of the Central Excise Act,1944 and has imposed penalty of  Rs.10,00,000/- under Rule 15(1) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act,1944.

4. Being aggrieved with the impugned order, the appellant have preferred the present appeal on the grounds that: the impugned order is not legally sustainable; Education Cess and Secondary and Higher Education Cess are also levied and collected as duty of excise and can be paid out of the Cenvat credit of basic excise duty in terms of the Rule 3(4) of the Cenvat Credit Rules, 2004; the sub-rule (4) of Rule 3 of the Rules provides for utilization of Cenvat credit which can be utilized for payment of any duty of Appeal No. V2/380/RAJ/2011 & Stay Application No. S/200/RAJ/2011

4 excise on any final product; as per section 93 of the Finance Act, 2004 Education Cess levied under Section 91 in the case of goods specified in the first schedule to the Central Excise Tariff Act, 1985 being goods manufactured or produced shall be a duty of excise; there is restriction under Rule 3(7) of the Cenvat Credit Rules, 2004, which applies to the credit of various duties,

such as additional duties on textile articles, NCCD , Education Cess etc.; in terms of this restriction, which overrides the provisions of Rule 3(4), the credit of the named of duties including education Cess can only be utilized for payment of the said duties alone; this restriction can not be extended to credit of duties not specifically listed under Rule 3(7); the case law relied upon by the lower authority in case of CCE Vs Bharat Box Factory  (2011 (1) TMI 222 - CESTAT, NEW DELHI)= 2011 (265) ELT 366 (Tri-Del) is not directly on the issue in the present case.

They refer and relied upon the following case laws:

(i) TTK-LIG ltd Vs CCE Chennai/New Delhi 2006 (193) ELT 169 (Tri-LB)

(ii) Mahidra & Mahindra ltd Vs CCE Mumbai 2007(211) ELT 481 (Tri-Mumbai)

(iii) Vipor Chemicals Pvt. Ltd. Vs. Union of India 2009(233) ELT 44 (Guj.)

(iv) CCE Vapi Vs. Balaji Industries 2008 (232) ELT 693 (Tri. Ahmd.)

(v) Sun Pharmaceutical Inds Vs CCE Jammu 2007(207) ELT 673 (Tri-Del)

 5. Hearing in the matter was granted and held on 21.02.2012 which was attended by Shri R Subramanya, Advocate of the appellant, during which he reiterated his contentions as given in the appeal memorandum and the case laws quoted therein. It was his contention that the reliance on M/s Bharat Box case is not correct in view of the arguments given in grounds of appeal.

6. I have carefully gone through the facts of the case, impugned order and appeal memorandum. I find that the issue to be decided in the present appeal is whether the impugned order of the Lower Authority disallowing the utilization of Cenvat credit of basic excise duty for payment of Education Cess and Secondary and Higher Education Cess and ordering for recovery of the amount along with interest and imposing of penalty under Rule 15 (1) of the Cenvat Credit Rules, 2004 read with Section 11 AC of the Central Excise Act,1944 is just, fair and correct or otherwise.

As the appellant has also filed stay application, I dispense with the requirement of pre-deposit of duty, interest and penalty and proceed to decide the appeal itself on merits.

Appeal No. V2/380/RAJ/2011 & Stay Application No. S/200/RAJ/2011 5

7. I find that the appellant has referred and relied upon decisions delivered by single/double member bench or larger bench of the hon’ble tribunal which are either not pertaining to the area based exemption or are not squarely applicable to the present case. However the decision relied upon in case of area based exemption, i.e. in case of M/s Sun Pharmaceuticals Industries, is delivered by Single member bench. Where as the hon’ble tribunal, two member bench, comprising of President and Member (T) has delivered a judgment in case of CCE Vs Bharat Box Factory ltd  (2011 (1) TMI 222 - CESTAT, NEW DELHI) = 2011 (265) ELT 366 (Tri-Delhi) wherein it has been interalia held that Cenvat credit cannot be utilized for payment of education cesses. While disposing off almost one and a half dozen appeals filed by the department on similar issue on hand the hon’ble president of tribunal went on to add that all orders passed based on M/s Sun Pharmaceuticals Industries case, wherein it was held that cess is also a kind of excise duty, do not lay down correct position of the law and also the decisions passed on the basis of the decision in case of M/s Sun Pharmaceuticals Industries has to be held to have been passed per in curium. In light of the judgment delivered by double member bench of the hon’ble tribunal in case of CCE Vs Bharat Box Factory ltd, the decisions passed on the basis of the decision in case of M/s Sun Pharmaceuticals Industries have to be held to have been passed per in curium. I find that this is the correct legal position as on today. In view of the above, I find that the appellant could not have utilized the Cenvat credit of the basic excise duty for the payment of education cesses.

8. In view of the abovementioned facts and circumstances, legal position and relying on the aforesaid decisions, I hold that the lower authority has correctly held that the case laws cited by the appellant are differentiable on the basis of the judgment delivered by Double member bench of the hon’ble tribunal in case of CCE Vs Bharat Box Factory ltd., reported at 2011 (265) ELT 366 (Tri-Delhi) wherein it has been interalia held that Cenvat credit cannot be utilized for payment of education cesses.

9. As regards to penalty under 15(1) of the  Cenvat Credit Rule, 2004 imposed by the lower authority, I find that there are various conflicting decisions given by the various benches of CESTAT where the assessee have Appeal No. V2/380/RAJ/2011 & Stay Application No. S/200/RAJ/2011 6 also succeeded in some cases. In the circumstance, I am of the view that the

penalty under Rule 15 of the  Cenvat Credit Rule, 2004 is not leviable, which is set aside. My views are also supported by the hon’ble Supreme Court’s judgments in case of (i) Maruti Suzuki ltd Vs CCE  (2009 (8) TMI 14 - SUPREME COURT)= 2009(240) ELT 641 (SC) and (ii) CCE Vs Gujarat Narmada Fertilisers Co. (2009 (8) TMI 15 - SUPREME COURT)= 2009(240) ELT 661 (SC).

10. In view of the above discussion the impugned order does not suffer from any infirmity, and is upheld but for the penalty under 15 of Cenvat Credit Rules, 2004. The appeal and the stay application are disposed of accordingly.

(R. B. TIWARI)

COMMISSIONER (APPEALS)

By R.P.A.D.

To,

M/s. Gallant Metal ltd.,

Survey No. 176, Near Toll gate,

Samakhiyali Bhachau, Dist. Kutchh

Copy To:

1) The Chief Commissioner, Central Excise, Ahmedabad.

2) The Commissioner, Customs and Central Excise, Rajkot.

3) The Deputy Commissioner, Central Excise Division, Gandhidham.

4) The Superintendent, Central Excise, AR-Kharirohar.

5) Guard File.

6) Spare Copy

Posts / Replies

[Pradeep Khatri]

Yes, Sir, this judgment is very strange and in the matter of units availing area based exemption, such judgments are being passed.  It is becuase, the department is revenue pro.