By TIOL News Service

AHMEDABAD, DEC 19, 2014: IN the case of Shreeji Surface Coatings Pvt. Ltd. - 2014-TIOL-2235-HC-AHM-CX, the Gujarat High Court while setting aside the orders of the lower authorities and allowing the petition by following the decision in Indsur Global Ltd. - 2014-TIOL-2115-HC-AHM-CX inter alia observed -

"4. When the entire showcause notice, order in original and appellate order are based on Subrule (3A) of Rule 8, the portion of which came to be struck down, such orders cannot survive. We have narrated facts only to demonstrate that the facts of the present case squarely fall within the portion of the Rule which was declared as ultra vires by the Court. It was only because the petitioner paid interest of barely about Rs.12,000/- through Cenvat Credit instead of paying it in cash, their all subsequent clearances were stigmatized. This was solely relying on the portion of Subrule (3A) of Rule 8, which required that the future clearances of a defaulter must be without utilization of the Cenvat Credit."

In the aforementioned case the duty demanded through account current PLA was Rs.19,16,737/-.

In the present case before CESTAT the "clearances were stigmatized" because of short payment of Rs.4,798/- in the month of March, 2011 and short payment of Rs.1,360/- in the month of April, 2011. These short payments which allegedly occurred due to calculation mistake were made good in the month of July and September, 2011 along with interest.

But the penalty the appellant had to pay was Godzilla esque. Invoking the not-so-humble provisions of rule 8(3A) of CER, 2002, the department issued a SCN for recovery of Rs.4,57,25,70,950/- [Rupees Four hundred fifty seven crores twenty five lakhs seventy thousand nine hundred fifty only] in cash/account current PLA.

The CCE, Vadodara was perhaps awed by the enormity of the demand and he confirmed the same along with an equivalent penalty and interest.

Any other assessee would have vanished - ease of doing business!

The assessee in question filed a stay application along with the appeal before the CESTAT and the matter was decided recently. Incidentally, the order was passed a few days before the landmark Gujarat High Court decision we mentioned at the outset.

Be that as it may, after considering the submissions made by both sides the CESTAT allowed the appeal.

And while doing so, the Bench observed as below -

++ The issue involved in the present proceedings is whether due to a calculation error, amounting to a short payment of Rs.6,158/-, appellant can be slapped with a demand of approximately Rs.457 Crores, along with interest and an equivalent amount of penalty. According to Revenue short payment of Rs.6,158/- is a case of default under Rule 8(3A) as upheld by CESTAT Delhi in the case of Godrej Hershey Limited vs. CCE, Bhopal - 2011-TIOL-65-CESTAT-DEL.

++ It is the case of appellant that a calculation error of a minor amount cannot be termed as a default of Rule 8(3A). CBEC Circular F.No. 206/01/96-CX-6 dated 30.9.1996 is relied upon by the appellant to emphasise that even after introduction of self-assessment scheme field formations have the responsibility to check arithmetic accuracy of duty paid.

++ From the above legal provisions it is observed that field formations are required to take recovery action under Section 11A of the Central Excise Act, 1944 if there is any calculation error and rate of duty difference. If a short calculation of duty is attributed to be a default of Rule 8(3A) of the Central Excise Rules, 2002 then every short payment paid on being pointed out by department, or suomoto by an assessee, will be a case of default. At the same time any valuation/ classification dispute detected by department and upheld by any appellate authority up to Supreme Court will also be a case of default of Rule 8(3A). Such a situation may arise after years of litigation also and may lead to a position of chaos rather than harmony and certainty in taxation matters.

++ We are, therefore, of the opinion that default in payment of duty mentioned in Rule 8 (3A) will be non-payment of duty as assessed by an assessee. However, there could be situations where an assessee deliberately calculates less duty liability in order to avoid penal provisions. The default with respect to Rule 8(3A) should be a deliberate act in total defiance of the law and not for minor calculation errors. For such minor calculation errors the provisions of Section 11A of the Central Excise Act, 1944 are attracted as per circulars issued by CBEC.

++ In the present case appellant themselves detected short payment and paid the amounts along with interest and intimated the department. Appellant had sufficient balance in its duty payment accounts and is paying crores of duty by issuing thousands of invoices. A minor calculation error cannot be categorised as defiance of law and will not amount to a default of Rule 8(3A) as these provisions will be applicable to non-payment of duty as self-assessed by an assessee. In the case of the appellant the short payment is so small that the judgment of Hon'ble Gujarat High Courts' order, in the case of Baman and Berry Bearing Private Limited vs. UOI will be applicable even if the act of the appellant is considered as default of Rule 8(3A) because law does not care for trifles (Lex non curat de minimis).

++ We respectfully differ with the views expressed by CESTAT Delhi (Godrej Hershey Limited) as this interpretation will lead to chaos and will not be implementable. In our opinion the default of Rule 8(3A) will take place only for non-payment of duty as assessed by the appellant. It is not the case of Revenue that there is a deliberate less calculation of duty on the part of the appellant.

++ There are also provisions in the Central Excise Act, 1944 and the Finance Act, 1994 that there is no need to issue show cause notice if an assessee pays the tax, along with interest, either on his own detection or after being pointed out by department officer; provided there is no element of fraud, willful misstatement etc. with intention to evade payment of tax. If the interpretation given by the Revenue is accepted than there will not be a single case where show cause notice will not be required to be issued even after payment of differential duty by an assessee after clearance of goods.

Holding that the appellants' case is not a default as envisaged in Rule 8(3A) of the CER, 2002, the appeal was allowed by setting aside the OIO passed by the adjudicating authority.

(See 2014-TIOL-2573-CESTAT-AHM)