Custom, Excise & Service Tax Tribunal
Pranav Construction Systems Pvt.Ltd vs Commissioner Of Central Excise on 9 February, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/730/09 (Arising out of Order-in-Original No.Belapur/69/Bel.II/ R.II/Commr./WLH/2008-09 dated 31/03/2009 passed by Commissioner of Central Excise, Belapur) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Pranav Construction Systems Pvt.Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Belapur Appearance:
Shri.Vinay Sejpal, Advocate for appellant Shri.Shobha Ram, Comm. (AR), for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) Date of Hearing : 13/09/2013 Date of Decision : 13/09/2013 ORDER NO Per: P.R.Chandrasekharan
1. The appeal is directed against Order-in-Original No.Belapur/69/Bel.II/ R.II/Commr./WLH/2008-09 dated 31/03/2009 passed by Commissioner of Central Excise, Belapur.
2. The facts relevant to the case are as follows:
2.1 The appellant, M/s.Pranav Construction Systems Pvt. Ltd. are manufacturers of excisable goods falling under Chapters 40 & 73 of Central Excise Tariff Act. For the month of March 2007, the duty liability of Rs.84,49,174/- was to be paid by 31/03/2007. The appellant paid a sum of Rs.35,96,124/- from the PLA account and a sum of Rs.46,92,795/- from the Cenvat Credit account. There is no dispute about these payments; thus, the outstanding duty liability as on 31/03/2007 was Rs.1,60,225/-. This duty liability was paid by the appellant on 01/04/2007 from the Cenvat Credit of capital goods earned on 01/04/2007. As per sub-rule 3 (4)) of Cenvat Credit Rule, 2004, it is provided that while paying duty of excise or service tax, as the case may be, the Cenvat credit is utilised only to the extent of such credit is available on the last day of the month or quarter as the case may be for payment of duty. Therefore, utilization of the Cenvat Credit to the extent of Rs.1,60,225/- on 01/04/2007 by the appellant was wrong. The appellant made good the said payment through PLA account on 30/04/2008 along with interest of Rs.22,831/-. Vide letter dated 08/05/2008, the appellant also informed the department about the mistake in payment of duty and the subsequent rectification. Thereafter, the department issued a show-cause notice dated 02/06/2008 alleging that there was a default in payment of duty of Rs.1,60,225/- which continued from 01/04/2007 to 30/04/2008 and therefore, during the said period, the appellant should have discharged the duty liability on the goods cleared by paying duty in cash and the availment of Cenvat Credit for payment of duty during this period was barred by the provisions of Rule 8 (3A) of the Central Excise Rules, 2002. Accordingly, the appellant was directed to pay a sum of Rs.3,86,55,390/- through PLA along with interest thereon under the provisions of Rule 8 of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944 and Section 11AB of the Central Excise Act, 1944. It was also proposed to impose penalties on the appellant under Rule 25 of the said Rules and also under Rule 15 of the Cenvat Credit Rules, 2004. It was further proposed to confiscate goods valued at Rs.24,18,68,717/- cleared during the impugned period under Section 12 of the Central Excise Act, 1944 read with Notification No.68/63-CE dated 04/05/1963 further read with Rule 25 & 27 of Central Excise Rules, 2002 and to impose a fine under Section 34 of the Central Excise Act, 1944. The said notice was adjudicated vide the impugned order. The adjudicating authority came to the following conclusion:
In the instant case it is noticed that the assessee has paid the duty twice. Initially they had used the unavailable Cenvat Credit as stated in show cause notice. Later they realized the error and paid the duty of Rs.1,60,212/- and Higher Secondary Cess of Rs.43/- vide E.No.003 dated 30/04/2008 with interest. In other words, they paid the duty due after 13 months. Accordingly, the outstanding duty for March 2007 to the extent of excess amount debited through the Cenvat Credit for following month is not proper and not in consonance with Rule 3 of the Cenvat Credit Rules, 2004. The relevant applicable extract of Rule 3 (4) of the Cenvat Credit Rules, 2004 is reproduced below:
Provided that while paying duty of excise or service tax, as the case may be the Cenvat credit shall be utilised only to the extent such credit is available on the last day or quarter, as the case may be, for the payment of duty or tax relating to that month or quarter as the case may be Thus, it is concluded that the Cenvat credit earned during the month of April 2007 has been utilized for payment of duty for earlier month, in contravention of provisions of Rule 3 (4) of Cenvat Credit Rules, 2004.
The support for above discussion is drawn from the judgement of Tribunal Delhi in the case of Commissioner of Central Excise, Chandigarh Vs. Raison Carbon Black Ltd. as reported in 2008 (229) ELT 113 (Tri-Del).
2.2 On the basis of the above conclusion, the adjudicating authority confirmed the duty demand of Rs.3,86,65,370/- along with interest thereon and also imposed a penalty of Rs.50 lakhs for wrong utilization of the Cenvat Credit. Aggrieved of the same, the appellant is before us.
3. The Ld. Counsel for the appellant made the following submissions:
3.1 The outstanding amount of Rs.1,60,225/- as on 31/03/2007 was made good by the appellant on 01/04/2007 by wrongly utilizing the Cenvat Credit amount lying with the appellant on 01/04/2007 As per Rule 3 (4) of the Cenvat Credit Rules, 2004, the appellant could not have utilised the Cenvat Credit for payment of duty for the month of March 2007, as the credit has been earned only in April, 2007. Thus, it was a question of wrong utilization of credit that is involved in the present matter. If the credit has been wrongly utilised the appropriate provisions for recovery of the same is Rule 14 of the Cenvat Credit Rules, 2004 and therefore, the invocation of Rule 8 of Central Excise Rules, 2002 in the present case is not warranted at all. Therefore, confirmation of duty demand to the extent of Rs.3,86,55,370/- for a short payment of Rs.1,60,225/- is not envisaged or sanctioned by law. He further submits that the appellant has been imposed penalty under Rule 15 for wrong utilization of the Cenvat Credit. Thus, the finding of the adjudicating authority against the appellant is wrong utilization of the Cenvat Credit. In view of the above, the impugned demand is not sustainable in law.
3.2 He further submits that this Tribunal in the case of CCE, Indore Vs. Deepak Silicate (P) Ltd. 2010 (258) ELT 127 (Tri-Del) held as follows:
Every case of short-levy cannot be treated as a case of default. The show cause notice does not reveal the circumstances under which short payment has occurred. The deemed non-duty paid clearance will arise only in cases of default of assessed duties and the consequences of treating such clearances as non-duty paid clearance such as seizure and confiscation, the prohibition regarding utilisation of cenvat credit, and the requirement of paying consignment wise will follow. In the present case, it is apparent that there is no allegation of default in payment but only short payment of duty in respect of five months. The reasons for short-payment that has occurred have not been dealt with in the show cause notice, order in original and the order in appeal. Under these circumstances, the finding of the default in payment and consequent liabilities are difficult to sustain. In other words, in the given facts and circumstances of the case, Rule 8(3A) cannot be invoked.
3.3 It is further contended that this Tribunal in the case of Solar Chemferts Pvt. Ltd., Vs. CCE, Thane 2012 (276) ELT 273 (Tri-Mum) had held as follows:
It is also relevant to note that even the consequence under the Act are that duty will have to be paid, interest will have to be paid, penalty will have to be paid and goods are liable to confiscation. In fact there is nothing in the Act which will bar payment of such short paid duty from Cenvat credit. Once the Act and Rule 8(3A) are read together a harmonious interpretation will be that during the period of default, payment through Cenvat credit will not be due discharge of duty. Interest will be payable so long as there is no proper discharge of duty. This is a consequence from Act but that will follow even if it is not mentioned in the Rules. That is to say duty paid during the defaulting period will be proper discharge once the default in payment from PLA, for the month of Dec. 2006 in this case, is made good and applicable interest is paid. With the result the only consequence that arises in this case is payment of interest and penalty. But interest will be payable from the date of each clearance to the date on which the default is made good that is 20-4-2007. This is so because once the defaulted amount is paid, thereafter the payment made through Cenvat become proper even if it is paid before the date on which defaulted amount is paid. So we do not find it necessary to ask the Appellant to pay duty in cash and take re-credit of equivalent amount debited in Cenvat Credit account earlier.
3.4 These decisions of the Tribunal have been followed by this Tribunal in a number of other decisions, such as, Bactolac Formulations Pvt. Ltd., Vs. CCE 2012-TIOL-970-CESTAT-Bang., Venkatesh Automobiles Pvt. Ltd., Vs. CCE 2013-TIOL-1319-CESTAT-Mum & F.S. Engineers Vs. CCE, Ahm-II 2013-TIOL-880-CESTAT-AHM. As per these decisions, once the duty payment has been made good along with interest thereon, it cannot be said that the availment of Cenvat Credit during the period of default is wrong. In the light of the above decisions, the impugned demand is not sustainable in law.
4. The Ld. Commissioner (AR) appearing for the Revenue on the other hand contends that there was an outstanding liability of excise duty as on 31/03/2007 of Rs.1,60,225/-. This default was made good only on 30/04/2008 and default continued during the period from May 2007 to April 2008. Therefore, during this period from May 2007 to April 2008, the appellant could not have availed or utilised Cenvat Credit towards payment of duty on the clearance of the excisable goods and therefore, the payment of duty availing Cenvat Credit during this period amounting to Rs.3,86,55,370/- is not sanctioned by law. Therefore, the appellant is liable to make good this amount of duty demand through PLA account which they can take re-credit on payment through PLA. Therefore, he submits that confirmation of duty demand in the impugned order is sustainable in law.
4.1 He further relies on the decision of the Honble High Court of Karnataka in the case of Manjunatha Industries Vs CCE, Bangalore 2013-TIOL-285-HC-KAR-CX wherein it was held that in case of default in payment of duty, prohibition under Rule 8 (3A) of the Central Excise Rule, 2002 from utilizing Cenvat Credit account is not with reference to arrears but the entire credit lying in the account. Therefore, the assessee has to pay excise duty through account current for each consignment at the time of removal. Since the Cenvat credit was unavailable, utilizing the same for payment of duty was an exercise in nullify and could not be recognized as payment towards duty. In the light of this decision of the Honble High Court of Karnatake, the other decisions relied upon by the appellant becomes irrelevant. Accordingly, he prays for upholding the impugned order.
5. In his rejoinder, the Ld. Counsel for the appellant submits that the decision of Honble High Court of Karnataka in the case of Manjunatha Industries cited by the Revenue was passed in the context of a stay order and in the said order, the Honble High Court made it clear that the observations therein is not binding on the appellate authority, while deciding the merits of the appeal and therefore, the said decision of the Honble High Court of Karnataka cannot be taken as a precedent.
6. We have carefully considered the submissions made by both the sides.
6.1 It would be appropriate at this juncture to refer to the evolution of Central Excise law after the introduction of self assessment and payment of duty on monthly basis by the assessee themselves. Prior to 1996, the Central Excise assessee was required to discharge excise duty liability at the time of removal of goods from the factory. In other words the payment was made prior to the clearance of the goods even without realizing the duty from the Customers. Therefore, as a matter of concession to the assessee, the facility for payment of duty on fortnightly payment was introduced by the Government and the assessee was required to pay excise duty liability on the goods cleared as a fortnightly basis. Later on, this facility was further extended to provide for monthly payment of duty. This was a facility granted to the assessee so as to give certain reliefs in the matter of payment of duty. When these provisions were evaluated after a lapse of time, it was noticed by the Government that certain assesses were misusing the facilities. In other words, they were not discharging the excise duty liability at the end of the month as provided for in the law. Therefore, as a measure of deterrence, provisions were introduced under Rule 8 of the Central Excise Rules, 2002, which underwent many changes. With effect from 2006, the provision is that if the assessee defaults in payment of duty by the due date and the default continues beyond a period of 30 days, then the assessee is required to pay excise duty for each consignment at the time of its removal, without utilizing the Cenvat credit till such time the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided for in these rules shall follow. The language used in the said Rule inherently implies a deliberate failure in discharge of duty liability on the part of the assessee. It does not cover a situation where there is a short payment of duty on account of error in computation of duty, or by wrong availment of Cenvat credit for payment of duty, etc. The Cenvat Credit Rules provides for taking and utilizing Cenvat Credit and the conditions required to be followed with respect to such availment of duty. Wherever there is a non-compliance of provisions of the Cenvat Credit Rules, the said Rules themselves provide for penal consequences. In other words, the Cenvat Credit Rule, 2004 is a complete code in itself providing for the terms and conditions for taking and utilization of credit and also for consequences on account of non-compliance with the provisions of said Rules. Therefore, if there is an error in availing the credit or wrong availment of credit, the Cenvat Credit Rules themselves can deal with the situation and there is no need to invoke the provisions of Central Excise Rules. In the present case the appellant has wrongly utilised Cenvat credit of Rs.1,60,225/- for payment of duty since the credit was earned subsequent to the month in which the goods were cleared and therefore, the appellant could not have utilised the credit for payment of duty on the goods cleared during the preceding month. It was thus a case of wrong availment of credit and not a case of default in payment of excise duty on the goods. The total duty liability for the month of March 2007 was Rs.84,49,174/-. A sum of Rs.46,92,795/- was discharged through Cenvat Credit during the month of March 2007 and another amount of Rs.35,96,124/- was paid through PLA. Thus, short payment of duty was Rs.1,60,225/- which was made good on 01/04/2007. this conduct on the part of the appellant cannot be termed as a deliberate attempt to default in payment of duty. In the present case, the appellant paid the duty on 01/04/2007 through by wrongly utilising the Cenvat Credit earned in the month of April 2007. This error on the part of the appellant was noticed by himself and made good in April 2008 along with interest and thereafter, the appellant intimated to the department after rectifying the error committed. In these circumstances, it cannot be said that the appellant deliberately defaulted in payment of excise duty. The adjudicating authority himself has come to the same conclusion in the impugned order, where in para 35 of the order he has concluded that the Cenvat Credit earned during the month of April 2007 has been utilised in the payment of duty for earlier month in contravention of the provisions of Rule 3 (4). Thereafter the adjudicating authority has proceeded to impose a penalty on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 for wrong utilization of the Cenvat Credit. Thus, what emerges from the impugned order is that the appellant wrongly availed the Cenvat Credit for payment of duty under Rule 14 of the Cenvat Credit Rules provides for recovery of Credit wrongly taken or utilised. In the impugned case, the appellant has reversed the credit and made good the wrongly availed credit along with interest thereon. Therefore, in our considered view the provisions of Rule 8 of the Central Excise Rules, 2002 are not at all attracted. Therefore, the confirmation of duty demand under Rule 8 is not sustainable in law. Inasmuch as the assessee has made good the wrongly availed Cenvat credit along with interest, imposition of penalty of Rs.50 lakhs is totally unwarranted. However, for the contravention of the Cenvat Credit Rules, 2004 a penalty of Rs.2000/- as provided under Rule 15 (3) of the Cenvat Credit Rules should suffice. Thus the appeal is disposed of in above terms.
(Dictated in Court) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 12