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TMI Blog2016 (6) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, on consignment basis. They paid the duty liability through CENVAT Credit and subsequently, there was change in law. The Department contended that the punishment would continue, till the default is fully discharged and during that period, duty has to be paid through Personal Ledger Account (in short PLA ) on consignment basis. 3. Before CESTAT, Madras, a contention has been made by the 1st respondent-assessee that change of law would not apply to them. According to them, the deferred monthly payment facility was withdrawn by the Deputy Commissioner of Central Excise, vide C.No.V/1/13/2000-VC, dated 23.08.2000, only for a period of two months, commencing from 31.08.2000. A show cause notice was issued by the Deputy Commissioner and the matter was adjudicated upon. Vide order, dated 21.06.2001, the 1st respondent-assessee was directed to pay the duty on the goods cleared in respect of which, debit has been made in CENVAT account, on consignment basis, from the date on which, the facility of monthly payments was withdrawn and the extent of the debit to be calculated. Amount was directed to be paid in PLA within 15 days, from the date of receipt of the order. Being aggrieved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002, restrains the assessee from using CENVAT credit, until the entire outstanding demand, including the interest is paid. A contention has also been made to the effect that the consequence of non-payment of excise duty or failure, it shall be deemed that such goods have been cleared without payment of duty and that the consequence of penalty, as provided in the rules would follow. It has been further submitted that explanation is only for making the position clear. Reliance has been made to a decision in Unirols Airtex v. CCE, Coimbatore reported in 2013 (296) ELT 449. 7. After hearing the parties and perusal of the records, the CESTAT, Chennai, vide Final Order No.41253 of 2015, dated 25.09.2015, at Paragraph 7, ordered as follows: We find that this being a small scale unit, the appellant assessee was paying excise duty on monthly basis, as per Rule 173G of CER, 1944 from 01.04.2000. SCN No.692/2003, dated 16.06.2003 was issued based on the amendment to Rule 173G(I)(e), w.e.f. 11.02.2001, which was later substituted by Rule 8 of CER, 2001. It cannot be disputed that the provision of Rule 8(4) are pari materia with Rule 173G(I)(e) and the non-obstantive clause was introduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty beyond the time limit prescribed therein. (b) Whether in the facts and circumstances of the case, the payment of duty utilizing CENVAT credit during default period is a valid discharge of duty liability under the Excise Law. 9. Reiterating the facts and the issues raised before the CESTAT, Chennai, arguments were advanced by Mr.T.Chandrasekaran, learned Standing Counsel appearing for the Commissioner of Central Excise, Chennai. He further submitted that challenging the decision in Malladi Drugs & Pharmaceuticals' case (cited supra), the Department has filed an appeal before the Supreme Court. Heard the learned counsel appearing for the parties and perused the materials available on record. 10. Before adverting to the above substantial questions of law, it is necessary to extract Rule 8(3A) of the Central Excise Rules, 2002, as follows: (3A) If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89 (Mad.), constitutionality of Rule 8(3A) of the Central Excise Rules, 2002, was challenged on the grounds that it was ultra vires to the object and scope of the Central Excise Act and CENVAT Credit Scheme. Proceedings initiated by the Department, invoking the said Rule, were also put to challenge. Arguments have been advanced that the said Rule is ultra vires to Explanation to Rule 8(4) of the said rules and contrary to the instructions of the Board in the CBEC Manual and also as well ultra vires of Articles 14 and 19 of the Constitution of India. Reliance has been placed on the judgment of Gujarat High Court in Indsur Global Ltd., v. UOI reported in 2014 (310) ELT 833 (Guj.), wherein, at Paragraphs 29 to 35, held as follows: 29. This brings us to the last limb of the petitioner's contention, namely, that the condition attached by sub-rule (3A) of rule 8 is unreasonable and therefore violative of Article 14 of the Constitution and amounts to serious restriction on the petitioner's right to carry on trade or business of his choice guaranteed under Article 19(1)(g) of the Constitution. This contention requires a closer scrutiny. As noted earlier, the restrictions of sub-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty invoice without delivery of goods specified in the said invoice; (f) claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine." This rule 12CC as well as the notification issued by the Government would apply to special class of assessees who through their conscious act tried to evade duty. 30. It can be seen that the reasons for non-payment of excise duty can be manifold and not necessarily in all cases have to be willful default by an assessee despite availability of funds. Excise duty may remain unpaid due to economic reasons, due to slowness in the business or due to financial crunch temporarily felt by the manufacturer who though might have cleared the finished goods and also sold the goods in the market may not have received the payment as promised. All such cases of defaults willful or otherwise are clubbed together for the same treatment and a stringent condition of payment of excise duty without availing Cenvat credit is imposed. It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. We may also recall that in the case of Dai Ichi Karkaria Ltd (supra) it was reiterated that a manufacture obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable produce immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail. 35. The situation can be looked at slightly different angle. With or without the provisions of sub-rule (3A), liability to pay interest for the default period as per sub-rule (3) of rule 8 continues. Sub-rule (3A) is basically a mechanism for stringent recovery and does not create a new liability unless this mechanism itself is breached. In such a mechanism to provide for withdrawal of CENVAT credit facility for paying the duty borders to creating a penalty. Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available. (emphasis supplied) 15. While considering the challenge to the proceedings initiated by the Department, by invoking Rule 8(3A) of the Central Excise Rules, 2002 and the consequential orders passed by the original authority or appellate authority, as the case may be, in demanding duty along with interest, the Hon'ble Division Bench of this Court in Malladi Drugs & Pharmaceuticals' case (cited supra), has also considered yet another decision of Gujarat High Court in Precision Fasteners Ltd., v. CCE reported in 2014 (12) TMI 655, wherein, at Paragraphs 4 to 7, the Court held as follows: 4. When the statutory basis for issuance of a show cause notice and raising tax demand is knocked down, the very proceedings would have to be struck down. 5. Learned counsel Shri Oza for the revenue, however, submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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