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TMI Blog2025 (4) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed amount of Central Excise duty from the appellant under the provisions of Section 11AB and Section 11AA of the Central Excise Act, 1944 read with Rule 8 of the Central Excise Rules, 2002; * Impose a penalty of Rs.11,96,95,120/- on the appellant under Section 11AC of the Central Excise Act, 1944. 2.1 Briefly stated facts of the present case are that the appellant is engaged in the manufacturing of ingots falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985. During the course of audit of records of the appellant for the FY 2011-12 by the Officers of the Indian Audit and Accounts Department, it was observed that the appellant had paid Central Excise duty after stipulated due date of payment of duty for various months and had paid interest at the rate of 13% per annum instead of effective rate of interest 18% per annum as per Notification No. 6/2011-CE(NT) dated 01.03.2011, on late payment of duty, resulting in short payment of interest of Rs.40,551/- for the period 2011-12. On being pointed out, the appellant deposited the said amount of interest of Rs.40,551/- vide GAR-7 Challan dated 05.11.2012. It was further observed that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.9,95,04,820/- till the payment of the same through GAR-7 Challan i.e. without utilization of the CENVAT credit, should not be levied and recovered from them under Section 11AB (up to the period 07.04.2011) and Section 11AA w.e.f. 08.04.2011 of the Central Excise Act 1944; (c) interest short paid on the duty paid by them through account current/PLA (in cash) after due dates should not be levied and recovered from them under Section 11AB (up to the period 07.04.2011) and Section 11AA w.e.f. 08.04.2011 of the Central Excise Act 1944; (d) penalty should not be imposed upon them under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. 2.4 The appellant filed reply to the show cause notice wherein the appellant stated that the entire proceedings initiated for demanding duty under Section 11A of the Act are contrary to the provisions of Rule 8(4) of the Rules and clarification contained in Board's Circular No. 766/82/2003-CX dated 15.12.2003 that in such default cases, duty amount not paid, should be recovered as 'Recoverable Revenue Arrears' under Section 11 of the Act. The appellant also relied on the decision of Hon'ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be achieved. It was noted as under : - "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-rule (3A) come in two folds. Firstly, a defaulter assessee has to clear the consignments on spot payment of excise duty and secondly, that such excise duty has to be paid in cash without availing Cenvat credit. This rule does not make any distinction between the wilful defaulter and the others. Though term 'wilful defaulter' has not been defined in the statute, the concept is not an unknown one. Section 11AC of the Central Excise Act provides for penalty in case of non-levy, short levy or non-payment or short payment or erroneous refund of the duty where the same is occasioned by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturer 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 wilful 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, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for payment of duty in addition to the duty which he has already paid. Cenvat credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his Cenvat credit account available to him for adjustment for payment of excise duty liability upon clearance of the finished product. If such facility is withdrawn, it could be appreciated, his ability to continue the business under such adverse financial climate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manufacturer 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 entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. 32. As held by the Supreme Court in the case of Chantamanrao (supra), the phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by clause (6) of Article 19, it must be held to be wanting in that quality. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty. 36. In the result, the condition contained in sub-rule (3A) of Rule 8 for payment of duty without utilizing the Cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the Cenvat credit" of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, shall be rendered invalid." 11. Similar view was reiterated in a later decision by the Gujarat High Court in Precision Fasteners Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce had been placed by learned counsel for the respondents, we proceed to examine them individually. In Smt. P. Laxmi Devi's case (supra), the Apex Court was considering the issue of amendment in Section 47A of the Stamp Act, 1899 requiring a party to deposit 50% deficit stamp duty as a condition precedent for a reference to the Collector. It was held that it was an economic measure, whose aim was to plug the loopholes and secure speedy realization of stamp duty, and, therefore, could not be said to be unconstitutional. Again, the Supreme Court in Spences Hotel Pvt. Limited's case (supra), laid down that provisions requiring luxury tax to be equal and uniform had to be interpreted in the light of its characteristics. In Aashirwad Films's case (supra), it was opined by the Apex Court that taxation laws must pass the test of Article 14 of the Constitution of India and that there should be a reasonable classification which should bear a nexus with the object sought to be achieved. In Basant Agrotech (India) Limited's case (supra), it was observed by the Apex Court that no tax can be imposed by inference or by analogy or by trying to probe intentions of legislature and by considering wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Agro Industries Ltd (supra), has held as under: 9. Further, we find that the provisions of Rule 8(3A) have been held to be ultra vires in the case of Indsur Global Ltd vs. UOI - 2014 (310) ELT 833 (Guj.), though initially the Hon'ble Supreme Court stayed the said decision reported as UOI vs. Indsur Global Ltd - 2016 (335) ELT A109 (SC), but subsequent vide the order dated 29.07.2024, the Special Leave Petitions and the appeals were disposed of by observing low tax effect. 10. Further, we find that jurisdiction High Court of Punjab & Haryana in the case of Sandley Industries vs. UOI - 2015 (326) ELT 256 (P&H) as well as the Hon'ble Telangana High Court in the case of CCE vs. DRD Body Tech's India Pvt Ltd - 2022 (379) ELT 106 (Telangana) have also declared the Rule 8(3A) as ultra vires. 11. Further, we find that in view of the various decisions relied upon by the leaned Counsel for the appellant cited supra, it has been consistently held by the various courts that the benefit of credit cannot be denied if subsequently duty is held to be payable on the final product." 9. In view of our discussion above and by following the ratios of the decisions cited above, we are of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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