Custom, Excise & Service Tax Tribunal
M/S. Star Drugs And Research Labs Ltd vs Cce, Chennai-Iii on 24 August, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT CHENNAI E/1483/2004 (Arising out of Order-in-Original No. 02/2004 dated 22.09.2004 passed by the Commissioner of Central Excise, Chennai). M/s. Star Drugs and Research Labs Ltd., : Appellant Vs. CCE, Chennai-III : Respondent
Appearance Shri S. Durairaj, Adv., For the appellant Shri K.P. Muralidharan, AC (AR) For the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member FINAL ORDER: 41253 / 2015 Date of Hearing : 24.07.2015 Date of Pronouncement : 25.09.2015 Per: P.K. Choudhary The appellant assessee M/s. Star Drugs is carrying out the business of manufacture of P or P medicaments falling under Ch. 30 of CET. The appellant assessee defaulted in making the payment of duty under deferred monthly payment facility during the months of April, May, June and July,2000. Hence, they were directed to pay the duty amount on consignment basis. They paid the duty liability through cenvat credit and subsequently there was change in law to provide that punishment will continue till the default is fully discharged and during that period duty has to be paid through PLA on consignment basis. The contention of the appellant assessee is that the change of law will not apply to them. This facility to make monthly payments was withdrawn by the Deputy Commissioner of Central Excise vide C.No. V/1/13/2000-VC dated 23.08.2000 for a period of two months commencing from 31.08.2000. Further a Show Cause Notice was issued by the Deputy Commissioner and the matter was adjudicated upon and by order dated 21.06.2001 the appellant 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debit has been made in Cenvat account on consignment basis from the date on which the facility of monthly payments was withdrawn and the extent of the debit to be calculated and the amount to be paid in PLA within 15 days of receipt of the order. Aggrieved by the said order in original dated 21.06.2001 the appellant filed an appeal which was dismissed on 28.05.2002. The appellant later filed an appeal with delay to this Honble Tribunal and the same was dismissed by order dated 27.10.2004 by this Tribunal. The appellants have filed a Writ Petition before the Honble High Court, Madras against the said order dismissing its application for condoning delay in filing the above appeal. While so on 19.06.2003 the appellant was served with a SCN dated 16.06.2003 in which it was alleged inter alia that the Assistant Commissioner had in his letter dated 14.01.2003 ordered the appellant to pay the excise duty on consignment basis by debit to account current and that till date the appellant had neither complied with the order of the Deputy Commissioner nor the order of the Assistant Commissioner to pay the duty in account current, but have continued to pay through Cenvat also. Therefore the appellant had to show cause why total duty paid in Cenvat amounting to Rs. 51,95,144/- from April 2002 to March 2003 should not be demanded as arrears for having contravened Rule 8(4) of the Central Excise Rules, 2002 and the goods cleared under payment of duty in Cenvat should not be construed to have been cleared without payment of duty and interest and penalty be not levied. The appellant in his reply dated 04.08.2003 to the SCN put forth his objections. During personal hearing the appellant filed written submissions assailing the SCN and requested the Department to drop all further proceedings contemplated under the SCN. The department by the impugned order rejected the contentions of the appellant and aggrieved by the said order, the appellant is constrained to approach the Honble Tribunal. Hence the present appeal.
2. The orders passed by the Tribunal in the miscellaneous petition in stay order No. 325/2005 dated 01.03.2005 and the modification petition in No. 298/2005 dated 25.04.2005 were challenged in the writ petition. The Honble High Court of Madras vide W.P.Nos. 17464,17465/2005 dated 24.05.2005 granted interim stay and to the operation of the order-in-original dated 13.09.2004 and this Tribunals order dated 25.04.2005. The Tribunal in its order dated 24-01-2006 had dismissed the assessees appeal for want of compliance under Section 35F of the CEA. The Tribunal vide miscellaneous No. 50/2006 dated 25.01.2006 in view of the Honble High Court of Madras order as mentioned above, directed for restoration of appeal to its original number.
3. The Honble High Court of Madras in its order dated 04.03.2009 had dismissed the writ petitions and closed the miscellaneous petitions and upheld the order of the Tribunal. Para 36 & 37 of the order of the Honble High Court are reproduced as under:-
36. The decision in 2006 (204) CTR (P&H) 213 (Roadmaster Industries of India (P) Ltd. Vs. Inspecting Assistant Commissioner of Income Tax and another) relied on by the petitioner sets out the principle that the quasi-judicial authorities are required to pass orders giving reasons, I do not see any valid ground to set aside the impugned orders on the ground of arbitrariness in considering the claim of the petitioner, either for waiver for pre-deposit of duty and penalty or for modification of the earlier order passed by the Tribunal.
37. In view of the above, this Court is of the Considered opinion that the petitioner has not made out a strong case for waiver of pre-deposit of duty and penalty, while considering the statutory appeal before the CESTAT. Hence, the writ petitions are dismissed. No costs. Consequently, connected miscellaneous petitions are also closed. The appellant however filed writ appeal before the Honble High Court and the Honble High Court vide order dated 29.04.2009 passed order directing the appellant M/s. Star Drugs and research Labs. Ltd., to furnish bank guarantee of Rs. 26.00 lakhs to the respondent i.e. CCE, Chennai-III within two weeks from 29.04.2009 and accordingly, the appellants will not be required to make the pre-deposit as directed by CESTAT. The appellant assessee had subsequently furnished the bank guarantee of Rs. 26.00 lakhs dated 09.05.2009 (date of expiry of BG was on 04.1.2000)
4. The Ld. Advocate S. Durairaj, appeared on behalf of the appellant assessee.
5. The Ld. Counsel submitted that the issue involved in this appeal is as to whether cenvat credit can be utilized for the payment of duty during the defaulted period from April,2002 to March, 2003. During the period of default, the appellants had paid the duty through cenvat credit on consignment basis as admitted in para-12 of the OIO. He further submitted that the issue is squarely covered by the decision of M/s. Noble Drugs Ltd. Vs. CCE, Nasik -2007(215) ELT 500 (Tri.-LB). He also relied on the following case laws in support of his contention:-
1. Indsur Global Ltd. Vs. UOI 2014-TIOL-2115-HC-AHM-CX 2014 (310) ELT 833 (Guj)
2. Precision Fasteners Ltd. Vs. CCE 2014-TIOL-2211-HC-AHM-CX
3. CCE, Madurai Vs. Kaleeswarar Mills 2013-TIOL-1209-CESTAT-MAD The Ld. Advocate filed copy of the decisions of the Honble High Court of Madras in the case of M/s. Malladi Drugs & Pharmaceuticals Ltd. Vs. UOI and Others 2015-TIOL-1262-HC-MAD-CX dated 27.03.2015 and mentioned that the Honble High Court has held that Rule 8(3)A is ultra vires of article 14 on the ground of arbitrariness.
6. The Ld. AC, Shri K.P. Muralidharan, AR submitted that cenvat credit cannot be used as a matter of right for payment of excise duty if the assessee fails to pay the duty within the stipulated period. He further submitted that Rule 8(3A) of the CER, 2002 restrains the assessee from using cenvat credit until the entire outstanding demand including the interest is paid. He further submitted that the consequence for non-payment of excise duty is also indicated in the very same section as it provided that in case of failure to pay the amount, it shall be deemed that such goods have been cleared without payment of duty and the consequence of penalties as provided in the rules would follow. Further, the explanation is only for making the position clear. He relied on the decision of the Honble High Court of Madras in the case of Unirols Airtex Vs. CCE, Coimbatore 2013 (296) ELT 449 (Mad.).
7. After hearing both the sides and on perusal of the records, we find that this being a small scale unit, the appellant assessee was paying excise duty on monthly basis as per Rule 173 G 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 173 G (I) (e) and the non-obstantive clause was introduced by insertion of sub-rule 3A in Rule 8 of CER, 2002 only w.e.f. 31.03.2005, while the period in dispute in the present case is prior to that date. We also find that the above issue stands answered in favour of the appellant assessee by the decision of the Honble Kerala High Court in the case of Thanikkudam Bhagawati Mills Ltd. Vs. CCE, Calicut in Central Excise Appeal No. 22/2005 dated 26.10.2005 wherein the Honble High Court held that during the period forfeiture of the facility of payment of duty on fortnightly basis, the assessee can discharge the duty liability either out of PLA or by utilizing cenvat credit and failure to do so would not attract interest and penalty. Further, Honble Madras High Court in the case of M/s. Malladi Drugs & Pharmaceuticals Ltd. (supra),relying on the Division Bench decision of Honble Gujrat High Court in the case of Indsur Global Ltd V. Union of India (supra) held that the condition contained in sub-rule (3A) of Rule 8 of CER, 2002 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is unconstitutional and that the subsequent proceedings initiated by the department for demanding tax was set at naught. Both Honble Gujarat High Court and Madras High Court have held that condition contained in Rule 8 (3A) of CER, 2002 for payment of duty without utilization of cenvat credit is contrary to the scheme of availment of cenvat credit under CCR and the said Rule 8 (3A) is arbitrary and violative of Article 14 of the Constitution. Accordingly, the Honble High Court has struck down the Rule 8 (3A) as unconstitutional. The jurisdictional Honble Madras High Courts ruling is binding on the jurisdictional adjudicating authority and also binding on this Tribunal. By respectfully following the ratio of the Honble High Courts order referred supra, we hold that demand of duty under Rule 8 (3A) is unsustainable as the said Rule has been struck down by the Honble High Courts and the demand of duty and penalty imposed in the impugned order is liable to be set aside. The assessees appeal is allowed.
(Order pronounced in the open Court on 25.09.2015)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
BB
1