CX - Duty liability as on 31/03/2007 paid by utilizing CENVAT credit earned on capital goods on 01/04/2007 - since said utilization of credit is prohibited by rule 3(4), it cannot lead to invocation of rule 8(3A): CESTAT
By TIOL News Service
MUMBAI, NOV 21, 2013: THE appellant are manufacturers of excisable goods. 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. The outstanding duty liability as on 31/03/2007 was Rs.1,60,225/- and this 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 CCR, 2004, it is provided that “ while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be ” for payment of duty. Therefore, utilization of the CENVAT Credit to the extent of Rs.1,60,225/- on01/04/2007 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.
By invoking rule 8(3A) of the CER, the department vide SCN dated 02/06/2008 alleged 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 appellants 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.
Inasmuch as 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 r/w s.11A & s.11AB of the CEA, 1944. Penalties were also sought to be imposed u/r 25 of CER 2002 and u/r 15 of CCR, 2004. Confiscation was also proposed.
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.
Before the CESTAT the appellant submitted that since it is contravention of rule 3(4) of CCR, 2004 that has been committed by them inasmuch as credit has been wrongly utilised, the appropriate provisions for recovery of the same is Rule 14 of the CCR, 2004 and, therefore, the invocation of Rule 8 of CER, 2002 and 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. It is further submitted that since the adjudicating authority has imposed penalty u/r 15 for wrong utilization of the CENVAT Credit, the demand is not sustainable in law. The following case laws were also adverted to viz.
+ CCE, Indore Vs. Deepak Silicate (P) Ltd. - 2010-TIOL-1738-CESTAT-DEL
+ Solar Chemferts Pvt. Ltd., Vs. CCE, Thane - 2011-TIOL-1968-CESTAT-MUM
+ Bactolac Formulations Pvt. Ltd., Vs. CCE - 2012-TIOL-970-CESTAT-Bang
+ Venkatesh Automobiles Pvt. Ltd., Vs. CCE - 2013-TIOL-1319-CESTAT-Mum
+ F. S. Engineer Vs. CCE, Ahmedabad-II - 2013-TIOL-880-CESTAT-AHM
The Revenue representative supported the order of the lower authority and also placed reliance on the Karnataka High Court decision in the case of Manjunatha Industries Vs CCE, Bangalore - 2013-TIOL-285-HC-KAR-CX. In his rejoinder, the appellant submitted that the decision of High Court of Karnataka was passed in the context of a stay order and in the said order, the 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 cannot be taken as a precedent.
The Bench referred to the evolution of the self-assessment and mentioned that it prior to 1996, the Central Excise assessee was required to discharge excise duty liability at the time of removal of goods from the factory. That as a matter of concession to the assessee the Government had granted the facility of payment of duty on monthly basis and after a lapse of time the provisions were evaluated when it was noticed that certain assessee were misusing the facilities and as a measure of deterrence certain provisions were introduced in rule 8 of the CER, 2002 which underwent many changes.
The CESTAT further observed -
+ The language used in the said Rule 8 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.
+ Whenever there is a non-compliance of provisions of the CENVAT Credit Rules, the said Rules themselves provide for penal consequences. In other words, the CCR, 2004 is a complete code in itself. Therefore, if there is an error in availing the credit or wrong availment of credit, the CCR themselves can deal with the situation and there is no need to invoke the provisions of CER.
+ 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.
+ Short payment of duty of Rs.1,60,225/- was made good on 01/04/2007 and this conduct on the part of the appellant cannot be termed as a deliberate attempt to default in payment of 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 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 CER, 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.
The appeal was disposed of in above terms.
In passing: confirmation of duty demand to the extent of Rs.3,86,55,370/- for a short payment of Rs.1,60,225/- - someone certainly lives in Utopia!
(See 2013-TIOL-1730-CESTAT-MUM)
