By TIOL News Service

NEW DELHI, AUG 07, 2015: THE appellant/assessee is the manufacturer of pig iron and scrap of iron on which he pays excise duty. The Central Excise Rules, at the relevant time, permitted payment of duty every fortnight instead of consignment basis. In this manner on the goods cleared in the first fortnight the duty was payable by 20th of the said month and for the goods cleared during the second fortnight the duty was payable by 5th day of the next month. The Revenue Authorities found that in the months of August, October and November 2000, the appellants had not paid the central excise duty on time. This led to the passing of an order by the Revenue suspending the facility of clearing goods of paying the duty every fortnight. Instead, the appellant was directed to make the payment of duty on consignment basis for a period of two months, i.e., from 19.12.2000 to 18.02.2001.

After the said orders were passed the appellant started paying duties on consignment basis. During this period the appellant paid around Rs.7 crores in cash through account current, i.e., PLA. However, the appellant also had credit in their Cenvat Account. A sum of Rs. 31 lakhs (approximately) was utilized from the Cenvat Account for payment of excise duty in the aforesaid period. The authorities took the view that the appellant could not have utilized the credit from the account. The appellant was asked to pay the said sum in cash and the appellant obliged. Since this payment was made later/belatedly, the Commissioner issued the show cause notice as to why the interest at the rate of 24% per annum should not be charged for the belated period, i.e., from 19.12.2000 to 20.05.2002.

CESTAT affirmed the order of the Commissioner holding that payment of duty by debiting the Cenvat Credit was not permissible during the said period of two months and therefore it would amount to non-payment of duty. As a consequence, interest was held to be payable till the date duty was actually paid through cash.

The moot question is as to whether it was not permissible for the appellant to utilize the Cenvat Credit during the aforesaid period of two months when facility for payment of duty fortnightly under Rule 173G was suspended. To put it otherwise, when the duty during this period was to be paid on consignment basis, it was also incumbent to pay the same in cash only and utilisation of Cenvat Credit was also forfeited during this period.

No estoppel against law: At the outset, the Supreme Court was compelled to remark that the Tribunal was not correct in observing that merely because the appellant paid the aforesaid portion of duty subsequently in cash, it had accepted the legal position that payment of duty through Cenvat Credit Account was not permissible under the provisions of Rule 173G (1)(e) of the Rules. Whether such a course of action was permissible or not had to be examined in the light of the legal provisions. There is no estoppel against law. Merely because the appellant had yielded to the demand of the Revenue to pay that portion of duty also in cash, would not mean that the appellant was precluded from taking a stand that such mode of payment through Cenvat Credit Account even during the period when facility of payment of duty by instalments had been withdrawn for two months, was permissible. It had taken a specific defence in this behalf and, therefore, the Tribunal was required to examine the matter in the light of the aforesaid Rule.

The Supreme Court observed,

For answering this question, first thing that is necessarily to be pointed out is the purport behind Rule 49 and Rule 173G of the Rules. Rule 49 enables the assessee to pay excise duty on fortnightly basis on removal of goods from the factory premises or from an approved place of removal but for this Rule the assessee is required to pay duty on removal of each consignment, i.e. on consignment to consignment basis. That is what is provided in Rule 9 of the Rules which mandates that no excisable goods shall be removed from the place where they are produced, cured or manufactured or any premises pertained thereto, which may be specified by the Commissioner in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until excise duty leviable thereon is determined and indicated on each application in the proper form or each gate pass, as the case may be, presented to the proper officer at such place and in such manner, as may be prescribed in these Rules or as the Commissioner may require. However, Rule 49 gives facility to the assessees to remove the goods without paying the duty immediately but allowing it to pay it on fortnightly basis as provided therein. At the same time, this facility is given to the manufacturer/assessee on the premise that he faithfully pays the duty every fortnight, by specified dates which are stipulated in Rule 173G. In case defaults are committed by the assessee , its consequences are also provided in the said Rule. For certain specified nature of defaults mentioned in Clause (e) of Rule 173G (1), this facility to pay the dues in instalments on fortnightly basis is to be forfeited for a period of two months.

What follows from the aforesaid scheme discernible from the combined reading of Rules 9, 49 and 173G (1) is that focus of these Rules is on the manner in which duty is to be paid, namely, on daily basis or on fortnightly basis. The mode of payment of duty is altogether different aspect.

Payment from Modvat credit is as good as tax paid:The mode of payment of duty through Cenvat Credit is as good as making payment through account current. This Court in Commissioner of Central Excise, Pune v. Dai Ichi Karkaria Limited - 2002-TIOL-79-SC-CX-LB described credit under the Modvat scheme to be "as good as tax paid".

When we understand the character of Cenvat Credit in the aforesaid manner, the answer to the question posed easily becomes available, namely, even during the period when the facility of payment of excise duty in instalments on fortnightly basis is not available and remains suspended for a period of two months, the only obligation for the assessee is to pay the duty on each clearance and not on deferred basis. At the same time, insofar as manner of duty is concerned, it can be either through account current or Cenvat Credit.

We are conscious of the words "during this period the manufacturer shall be required to pay excise duty for each consignment by debit to the account current referred to in Clause (b)...... " occurring in clause (e). It is on the basis of this language used in Clause (e) of Rule 173G (1) , the argument of the learned senior counsel for the Revenue is that the only mode or manner of payment of duty during this period was through account current. However, it is not possible to agree with this contention in the absence of specific prohibition contained in the said sub-rule (e) in this behalf coupled with the fact that the payment of excise duty through Cenvat Credit is recognised as a valid mode of payment.

The Modvat Scheme: it also required to emphasize that the Central Government introduced a scheme namely MODVAT Scheme in the Central Excise Law as introduced by a separate Chapter containing Rule 57A to 57(U) from 1986. As per the MODVAT credit scheme introduced by the aforesaid Rules, the manufacture of certain final products which are excisable goods specified in the notification issued by the Government, is allowed credit of any duty to excise paid by him on the input which is used in the manufacture of the final product. The credit of specified duty allowed is to be utilised towards payment of duty excise allowable on the final product whether under the Act or under any other Act as the case may be by the notification issued and subject to such conditions as may be specified. As per Rule 57F , the inputs on which credits have been taken may be used in or in relation to the manufacture of final products and the inputs may be removed for home consumption or for export under bond. As per this rule, all the removals of inputs for home consumption shall be made on payment of duty equal to the amount of credit availed in respect of such inputs and under the cover of invoice prescribed under Rule 52A. The inputs can also be removed as such or after they have been partially processed by the manufacturer of the final products to a place outside the factory under the cover of a challan specified in that behalf by the Central Board of Excise and Customs, for the purpose of test, repair etc. carrying out any operation necessary for manufacture of final products and return the same to his factory within the specified period. The inputs on which credit has been taken may be used for the manufacture of final products or can be removed after payment of duty for home consumption. Rule 57-I provides for recovery of credit wrongly availed of or utilised in an irregular manner. It provides for recovery of the duty credit of which was wrongly availed and if the manufacturer has taken the credit by reason of fraud or willful misrepresentation, suppression of facts etc. with the intention to evade payment of duty then he shall, apart from his liability to pay the amount equivalent to the credit, be liable to pay penalty equal to the same amount plus interest under Section 11AA.

The Scheme is thus, a self-contained one, dealing with its applicability, eligibility of credit of duty on certain inputs, adjustment to be made on the credit of inputs used in final products, manner of utilisation of inputs, procedure to be followed by the manufacturer, procedure to be followed by the persons who have availed credit issued in invoice and finally provision for recovery of credits wrongly availed and a provision for imposing penalty for violation of the provisions and availing wrong credit. With the introduction of this new scheme, the assessee had the option to pay excise duty by availing credit of the duty paid on inputs provided he is a manufacturer of the finished products making use of such inputs.

The Supreme Court referred to the amendment to the Central Excise Rules in 2005 when the Rule 8(3A) was introduced, which provided for, "and during this period notwithstanding anything contained in sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall be required to pay excise duty for each consignment by debit to the account current 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 in these rules shall follow."

The Supreme Court observed,

"It is for the first time that a non obstantive clause was added so as to take away the benefit under the Cenvat Credit rules and to utilise the input credit during the operation of the suspended period and requiring any duty by debit to the account current only. Until then, as is already referred to above, merely because rule 173G recognises the payment of duty utilising the Cenvat credit also and providing for payment of duty through open and current account only during the suspended period will not have the effect of taking away the benefit conferred by a separate rule since even without Rule 173G by virtue of Rule 49 read with Rule 57A a right has already conferred on the assessee to utilise the input credit for payment of duty at the time of discharging his liability to pay duty on the final product as provided for in the rules."

The result of the aforesaid discussion would be to allow these appeals and set aside the decision of the CESTAT.

(See 2015-TIOL-176-SC-CX)