By TIOL News Service

NEW DELHI, JAN 28, 2014: THIS is a case of default in payment of Central Excise duty of Rs.88.80 lakhs. The demand stands confirmed against the appellant for violation of provisions of Rule 8(3A) of the CER, 2002. Out of this amount, Rs.16.70 lakhs was paid by debit in the CENVAT account and the balance by cash. Revenue does not agree with this mode of payment. Interest is directed to be paid and a penalty of Rs.5000/- has been imposed u/r 27 of the CER. The appellant is before the CESTAT.

The Member (Judicial) observed that since the appellant has late deposited the duty, they are liable to pay interest but since the same is not quantified, the Revenue was directed to quantify the same and the appellant was directed to pay the same within 8 weeks. In the matter of payment of Rs.16.70 lakhs through the CENVAT account, the Member(J) viewed that the stand of the department that the same should be deposited in cash does not find favour in view of the decisions in Solar Chemferts P. Ltd.- (2011-TIOL-1968-CESTAT-MUM) and Baba Viswakarma Engg. Co. (P) Ltd. - (2011-TIOL-2010-CESTAT-DEL) wherein it has been held that deposit through CENVAT credit during the period of default would only result in confirmation of interest to the Revenue as that is the only loss to the Revenue. In the matter of penalty imposed, the Member(J) upheld the same citing the Gujarat High Court decision in Saurashtra Cement Ltd. (2010-TIOL-889-HC-AHM-CX) and directed the appellant to deposit the same and report compliance.

The Member (Technical) concurred with the view taken by the M(J) in the matter of interest but had a differing view in the matter of payment made through CENVAT and penalty.

He observed that the issue is not of simple default of payment of duty but fraudulent actions are also involved and hence the issue has to be seen from that perspective.

After recapitulating the facts involved and tabulating the defaults in making the payment of due by due date and the instances when the cheques were purportedly deposited in the bank, the Member (T) adverted to the provisions of Rule 8(3A) of the CER, 2002 and observed -

++ appellants have been indulging in fraudulent activity and have been representing to the department that due amount has been paid through cheques. However, when details were checked from concerned Banks, it was found that majority of cheques as per details indicated in table below were returned back due to insufficient balance. Some cheques as indicated in table above were not even presented to Bank. Painting a gloomy picture Revenue was defrauded. That clearly brought out intention to defraud keeping revenue department in dark.

++ There is also allegation that appellant has enclosed bogus counterfoils of the cheques having stamp of Punjab National Bank branch. However, fact is that there cheques were never presented to the Bank. This act of appellants misleading was with conscious and exclusive knowing well that appellant has no funds in the Bank but intended to avail the benefit at the cost of revenue.

++ Amount of demand except Rs.16.70 lakh were paid through PLA. Interest on that amount is payable. I concur regarding payment of interest. But regarding payment of Rs.16.70 lakhs through cenvat credit, I am not agreeable as it is against the laid down provision of Rule 8 A and specially rule 8 (3A).

Referring to the Gujarat High Court decision in the case of Harish Silk Industries and the Madras High Court decision in Unirols Airtex Vs. Assistant Commissioner of Central Excise, Coimbatore (2013-TIOL-684-HC-MAD-CX), the Member(T) viewed that the amount of Rs.16.70 lakhs is required to paid through cash or current account along with leviable interest.

In the matter of imposition of penalty, the Member(T) observed that considering the fraud involved, intent to defraud by way of mis-representation is clearly proved and ingredient of Section 11AC are available; that penalty under rule 25 read with Section 11AC is rightly leviable.

In fine, the Member (T) took a view that a pre-deposit of penalty of Rs.25 lakh is necessary for grant of stay of penalty and the already reversed amount of Rs.16.70 lakh paid through CENVAT credit is required to be paid through PLA/current account.

The following difference of opinion was, therefore, referred to the third Member for a Majority decision.

Whether payment of duty arising out of default, is to be paid thought Cenvat credit and pre-deposit of penalty is to be restricted to Rs.5,000/- held by Member (Judicial) based on judgment of Hon'ble Gujarat High Court in the case of Saurashtra Chemicals.

Or

Whether payment of duty arising out of default, is to be paid through cash/current account as per provisions of Rule 8 and Rule 8(3A) based on Gujarat High Court Judgment Harish Silk Industries 2013 (288) ELT 74 (Gujarat) and Hon'ble Madras High Court judgment in the case of Unirols Airtex Vs. Assistant Commissioner Coimbatore - (2013-TIOL-684-HC-MAD-CX) and in view of misrepresentation and fraud, pre deposit of Rs.25 lakhs is to be directed as held by Member (Technical).

In passing: In the matter of appeals filed before Commissioner(A), Section 35A(3) of the CEA, 1944, first proviso thereto reads - Provided that an order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order:. Incidentally, section 35C does not have a similar proviso.

(See 2014-TIOL-138-CESTAT-DEL)