Custom, Excise & Service Tax Tribunal
Psl Ltd vs C.C.E. & C.C, Visakhapatnam-I on 17 October, 2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Application(s) Involved: E/Stay/1512/2011 in E/2467/2011-SM Appeal(s) Involved: E/2467/2011-SM [Arising out of Order in Appeal No.19/2011 (V-I) CE dated 06/06/2011 passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals), Visakhapatnam.] PSL LTD. Appellant Versus C.C.E. & C.C, VISAKHAPATNAM-I Respondent
Appearance:
Mr.B. Raghavendra, Advocate For the Appellant Ms. Sabrina Cano, Superintendent (AR) For the Respondent CORAM:
SHRI B.S.V. MURTHY, MEMBER TECHNICAL Date of Hearing: 17/10/2013 Date of Decision: 17/10/2013 Final Order No. 26788 / 2013 Order Per : B.S.V. Murthy The appellant is engaged in the manufacture of pipes and availing the credit of duty paid on inputs and capital goods and service tax paid on input services which are used in the manufacture of final products in terms of provisions of CENVAT Credit Rules, 2004. During the month of January 2008, the appellant debited an amount of Rs.22 lakh from Education Cess account and Rs.3 lakh from SHE (Secondary and Higher Education) Cess account and transferred the same to BED credit account. During the month of January 2008, out of the CESS amount transferred to BED, appellant had utilized almost the entire amount so transferred for payment of BED. This was detected during the course of verification of the records of the assessee and jurisdictional Superintendent of Central Excise wrote letters to the appellant on 28.7.2009 and 10.8.2009. On this being pointed out, the appellant replied that they were liable to pay only Rs.220/- towards interest on the negative balance which had arisen in the month of May 2008 to the extent of Rs.77, 293/- and this was debited by them. However, the appellant also debited Rs.25 lakh which was transferred from CESS account to BED account on 27.8.2009. Treating this reversal of Rs.25 lakhs from the BED account as belated discharge of duty liability, interest of Rs.5,12,877/- was demanded from the appellant by way of issue of show-cause notice. Proposal was also made to allow deduction of interest amount of Rs.220/- already paid by them. Besides this, penalty was also proposed under Rule 15(1) of CENVAT Credit Rules, 2004 which has culminated in the impugned order whereby the demand for interest has been confirmed and penalty of Rs.5, 000/- has been imposed.
2. The matter came up for hearing on 15.10.2013 and the learned advocate for the appellants vehemently argued that in this case the demand itself is not at all sustainable. This is because there is no determination of duty amount payable by the appellant under Section 11A (2) of Central Excise Act, 1944 and in the absence of such determination, the demand for interest and imposition of penalty cannot be sustained at all. It was also argued that throughout the period that it is from January 2008 till the amount was reversed by the appellants, they had sufficient balance in their CENVAT credit account. Therefore it can be said that in terms of Rule 14, the credit had never been utilized by the appellant. When credit itself was never utilized, the payment of interest would not arise. For this purpose, the appellant relied upon the decision of the Honble High Court of Karnataka in the case of Bill Forge Pvt. Ltd.: 2012 (279) E.L.T. 209 (Kar.).
3. On going through the records and after hearing both the sides, it was found that the claim of the learned counsel that the appellant had positive balance throughout the relevant period itself was not correct and was contrary to the facts. According to the letter of August 27th, 2009, written by the appellant, this claim was made besides making the same claim before me. On going through the Annexures to the letter, it is noticed that there was a clear balance of Rs.24, 88,553/- in the excise duty account and this was after the transfer of Rs.25 lakh from the Cess account. This shows clearly that but for the transfer of Rs. 25/- lakhs from the Education Cess account, the balance in the month of January would have become negative straightaway. Therefore the claim of the appellant that they had positive balance throughout the period from January 2008 till the date they made the payment itself is totally false. It is also noticed that there was closing balance of Rs.6, 13,623/- in March 2008 and Rs.3, 66,433/- in April 2008, which would show that in these months also the balance would have been negative but for the transfer of Education Cess credit to the BED credit. In May, 2008, even according to the appellant, there was negative balance. The first requirement of any appellant before the Tribunal is to come with an open hand and state the correct facts. I find that right from the beginning the appellants have been making such claims and even before me also a similar claim was made and not only in appeal memorandum but also during hearing. Only when the annexures were verified and scrutinized, it was found that there was negative balance at least in four months during the relevant period.
4. The question that arises is whether there was a need for determination of duty under Section 11A (2) before demanding interest. In this case, the appellant was informed in July 2009 about the irregular transfer of credit and after the information also, the appellant contended that they were liable to pay interest on the negative closing balance in the month of May 2008 and paid an amount of Rs.220/-. However, subsequently they reversed the entire amount of Rs.25 lakhs wrongly transferred from Cess account to the BED account and thereafter proceedings were initiated only for interest. Under these circumstances, the question that arises is whether the claim of the learned counsel that in this case without determination of duty under Section 11A(2) of Central Excise Act, 1944 there could not have been demand of interest is correct or not.
5. The provisions of Section 11A of Central Excise Act, 1944, are reproduced below:
SECTION 11A: Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. -
(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunde], a the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if, for the words one year, the words five years were substituted:
Explanation. Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.
(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(2A) Where any notice has been served on a person under sub-section (1), the Central Excise Officer, -
(a) In case any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, where it is possible to do so, shall determine the amount of such duty, within a period of one year; and
(b) In any other case, where it is possible to do so, shall determine the amount of duty of excise which has not been levied or paid or has been short-levied or short-paid or erroneously refunded, within a period of six months, from the date of service of the notice on the person under sub-section (1).
(2B) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty on the basis of his own ascertainment of such duty or on the basis of duty ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of the duty, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid:
Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this Section, and the period of one year referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.
Explanation1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty.
Explanation 2. - For the removal of doubts, it is hereby declared that the interest under Section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section.
(2C) The provisions of sub-section (2B) shall not apply to any case where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President.
(3) For the purposes of this section, -
(i) refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(ii) relevant date means, -
(a) In the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid (A) Where, under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B) Where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) In any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;
(b) In a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;
(c) In the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.
6. From the reproduced Section above, it becomes clear that where an assessee pays the duty determined by the Central Excise officer or determined by himself voluntarily, no show-cause notice shall be served on him. However, the Section also provides that on verification of the amount paid by the appellant, if the Central Excise officer finds that there was short-payment of duty, he can issue show-cause notice within one year. As can been seen in the explanation, it has been provided that interest under Section 11AB shall be payable on the amount paid by the person under this subsection and also on the account of short-payment of duty, if any, determination by the Central Excise officer. In my opinion, when a short-payment is determined, the interest if it is not paid, it also become a short-payment and it can be demanded within one year as provided in the first proviso to subsection (2B) of Section 11A. This is because in the explanation, it has been declared that interest shall be payable as provided under Section 11AB on the amount paid by the person. Once the same Section provides for payment of interest also along with the duty, if duty alone is paid, the Central Excise officer will be free to determine the interest liability and demand it within one year by invoking the provisions of Section 11A(2) and issue a show-cause notice. Under these circumstances, the claim of the learned counsel that in the absence of determination under Section 11A (2) there could not have been a demand for interest, does not appear to be correct. When this was pointed out by the Bench and on the basis of own observation as well as the submissions of the learned AR, the learned counsel submitted that Section 11AB would not be applicable at all in this case and he also argued that Rule 14 also does not provide for this.
7. Rule 14 of CENVAT Credit Rules, 2004 provides as under where the CENVAT credit has been taken on utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or from the provider of the output service and the provisions of Sections 11A and 11AB and the Excise Act or Sections 73 and 75 of Finance Act, shall apply mutatis mutandis for effecting such recoveries.
8. It was the submission of the learned counsel that what is being demanded is CENVAT credit and the same has been treated as duty, since Section 11A has been mentioned in Rule 14 and therefore there should have been determination of duty in this case.
9. I am unable to accept this argument. Section 11A (2B) is an exception to the procedure prescribed in Section 11A. It caters to a situation where an assessee makes a voluntary payment and there is no suppression or fraud or mis-declaration or collusion, etc. The Section itself provides for recovery of the entire amount and it also provides that subsection 2B would not apply where there is fraud, suppression, mis-declaration, etc. when Section 11A has been made applicable for recovery/payment of credit wrongly taken or utilized, it would be unfair to an assessee to make a claim that when the credit is treated as duty, determination under section 11A (2) is a must. What Rule 14 of CCR%, 2004 means is that whole of the provisions of section 11A would be applicable and what we have to see is applicability of section 11A2(B) also. Further proceedings are initiated only when there is a short-payment either by own assessment or by the assessment by the Central Excise officer. As observed short payment would include nonpayment or short payment of interest also. Therefore the procedure adopted by the Revenue to demand only interest cannot be found fault with. Once section 11A (2B) provisions are applicable to a particular situation, the provisions of Sections 11A (1A), (2) and (2A) would not apply. In this view of the matter, I am unable to agree with the submissions made by the learned counsel. On this ground, various decisions cited by the counsel and argued extensively to submit that unless there is a determination of duty under Section 11A(2) of Central Excise Act, 1944 there cannot be demand for interest is also not acceptable.
10. At this stage, when it was pointed out to the counsel that the case is clearly covered by Section 11A (2B) and therefore the demand is sustainable, the learned advocate sought time for making fresh submissions. Accordingly the matter was treated as part heard and adjourned for hearing today.
11. When the matter was called out, the learned counsel submitted points for arguments which are reproduced below:
* Credit of Education Cess and SHE Cess has been rightly availed under Rule 3 of the CCR, 2004.
* In terms of Rule 3(7) (b) of the CCR, 2004, there is no prohibition for transfer of credit either to BED account or any other account.
* However, the prohibition is only for utilizing the credit of one stream for payment of respective output duties, except for exceptions provided in the provisos.
* Consequence of utilizing the Education Cess for BED would lead to two anomalies:
o The goods for which duty has been paid by utilizing such irregular credit be treated as removal of goods either as without payment of duty or as short payment of duty (logic is Rule 8(3A) of the Central Excise Rules, 2002.
o Treat the utilization of Education Cess by transferring into BED account as wrong utilization.
* In the instant case, the department, having accepted that the BED on final products (paid from Education Cess account) and that no action has been initiated for recovery of duty on such final products under Section 11A, cannot claim that the utilization of Education Cess for BED is irregular.
* Once the duty payment by utilizing the credit of Education Cess and SHE is considered as valid payment and when no objections whatsoever has been raised in terms of Section 11A ibid the recovery of credit/interest in terms of Rule 14 is impermissible.
* Further, Rule 14 of CCR states that where credit is utilized wrongly.. the same along with interest shall be recovered from the manufacturer .. and the provisions of Sections 11A and 11AB of the Excise Act,. shall apply mutatis mutandis for effecting such recoveries.
* The expression that the provisions of Sections 11A and 11AB for effecting such recoveries in the context refer to the wrongly utilized credit which is Rs.25 lakhs in the present case. Since the SCN has not sought to recover the wrongly utilized credit of Rs.25 lakhs, the SCN is liable to be set aside as the SCN is the foundation of initiating the proceedings.
* The situation covered in Section 11A(2B) will not apply in the facts of present case since the circumstances covered in Section 11A(2B) refers to duty of excise not being levied or short paid on the final products. However, in the present case, the department has accepted the duty (paid through Education Cess account) and has not disputed by demanding duty on such final products treating the same as removed without payment of duty.
* The transfer of Education Cess credit by the appellants neutralizes the position and hence recovery of interest does not survive.
* Voluntary payment made by the appellants cannot be treated as payment under Section 11A(2B) unless it is specifically sought for.
12. The learned AR contradicted the submissions and argued that the show-cause notice has been issued properly.
13. The first submission is that in terms of Rule 3(7)(b) of the CENVAT Credit Rules, 2004, there is no prohibition for transfer of credit not only to BED account but also to any other account. This submission is totally contrary to the provisions of law.
14. According to Rule 3(7)(b) CENVAT credit in respect of various duties and cesses specified thereunder can be utilized only for payment of the same duty or cess. This is emerging from the word respectively used in the sub-rule. It also provides that such utilization can be for payment of the same type of duty or cess on any final product manufactured by the manufacturer or payment of said duty on inputs themselves, if such inputs are removed as such and after being partially processed or any output service. Rule 3 as a whole provides for circumstances under which, credit is allowed; how the credit has to be taken; and how it has to be utilized. There cannot be any method of utilization other than what is prescribed under the Rule. When the Rule provides that credit can be utilized for payment of such duty on the final products or inputs removed as such or partially processed, the claim of the learned counsel that the transfer of credit from cess account to BED account is permissible under Rule 3(7)(b) of CENVAT Credit Rules, cannot be sustained. Learned counsel fairly agrees that he has no judicial pronouncement to support his submission. Under these circumstances, this submission cannot be accepted.
15. The second submission made was prohibition is only for utilizing the credit of one stream for payment of respective output duties, except for exceptions provided in the provisions. When the appellant transferred the Cess credit to BED credit, what appellant is doing is exactly what is prohibited under the Rule. They could not have reversed education cess and claimed it as payment of excise duty. To overcome this, they have transferred the amount from the cess account to the BED account. This amounts to claiming that when a person is prohibited from entering the house through the front door, he can enter the house from back door, which is not permissible. As regards the question of utilizing the education cess for BED, I agree with the learned counsel that the department should have treated the goods as being cleared without payment of duty and liable to confiscation and proceeded to impose penalty under Rule 25 of the Central Excise Rules. No doubt the department has not done this and they have treated them under Section 11A(2B) which provides for a lenient treatment for a law abiding assessee. It may be noted that if the department were to take the option which is being claimed as the one that should have been utilized, the department had 5 years time to issue show-cause notice and mandatory penalty also could have been claimed to have been applicable. I am surprised that after misusing the credit and wrongly applying the law, the appellants are claiming that the department should have treated them more harshly, when no harsh treatment is made by the department and when the treatment is less harsh, it is their claim that there should have been no demand of interest and penalty. This has been considered in the light of the decision of the Honble Supreme Court in the case of M/s. Ind-Swift Laboratories Ltd.: 2011 (265) E.L.T. 3 (S.C.), the Honble Supreme Court took the view that even though credit has been taken but not utilized, interest is payable. In this case, appellants have not only taken the credit but also utilized the same as already pointed out while commenting on the submissions made and result of verification of records. That being the position, the claim that the department should have treated the issue differently has no validity. In any case, what has to be examined is whether the approach adopted by the department is legally sustainable or not, which in my opinion is sustainable and relevant provisions of law have already been considered and discussed above.
16. The next submission is that department having accepted the BED on final products (paid from Education Cess account) and having not initiated action under Section 11A cannot claim that the utilization of Education Cess for BED as irregular. The appellant seems to have failed to take note of the correct procedure for payment of Central Excise duty. The present system is self-assessment. The assessee is required to assess the goods themselves and collect the tax and pay the same to the government. There is no question of acceptance of payment by Revenue at any stage. When the system by assessment of RT 12 was discontinued and the assessment process itself was stopped by the Revenue, the question of acceptance of payment by an assessee just does not arise. Only provision available now is if there is a short-payment, the provisions of section 11A have to be invoked. The time limit naturally varies depending upon the circumstances. That being the position, the claim that department has accepted the BED on final products has no basis and cannot be accepted. Mentioning in the ER1 also does not mean that department has accepted because there is no system of assessment of ER1 return and return the assessees copy to an assessee which was a system followed when RT 12 returns were filed and assessed; and returned to the assessee. In such a situation, there was scope for stating that department has accepted the payment. In the absence of assessments of the return and in the absence of any other mechanism to intimate the assessee that the amount paid has been accepted as correct or accepted as such, the claim that department has accepted the amount paid by them has no basis.
17. As regards the submissions that the situation covered in Section 11A(2B) would not apply in the facts of the present case since the circumstances covered in Section 11A(2B) refers to duty of excise not being levied or short-paid on the final products is really surprising. Rule 14 clearly provides that for the purpose of recovery of wrongly utilized credit or wrongly taken credit, provisions of Section 11A and 11AB would apply mutatis mutandis. This does not mean that when Section 11A(2B) is invoked, it becomes duty and not the wrongly utilized CENVAT credit. Therefore this submission cannot be accepted.
18. Under these circumstances, the appellant has failed to make out any case whatsoever for setting aside the order demanding interest from them. As regards penalty, under the circumstances wherein the appellants have made false claims in their submissions and false claim before the Tribunal also, I do not consider it requires any interference in view of the fact that the penalty imposed is only Rs.5,000/-.
19. In the result, the appeal is rejected.
(Order dictated and pronounced in open court) (B.S.V. MURTHY) MEMBER TECHNICAL rv 10