By TIOL News Service

CHENNAI, SEPT 21, 2016: THE appellant is engaged in the manufacture of non-alloy steel ingots and billets, falling under Chapter Sub-Heading No.7206.90 of the Schedule to the Central Excise Tariff Act, 1985, covered under Section 3A of the Central Excise Act, 1944, during compounding levy scheme. They challenged the demand of Central Excise duty before the Tribunal, but the Tribunal held that Rule 96 ZO( 3) of the Rules, was couched in a mandatory language and therefore, the assessee cannot escape its liability. The Tribunal further held that the assessee is liable to pay duty, at the prescribed rate and interest, on the amount of duty demanded. Thus, the appeals filed against the levy of duty, have been dismissed. As regards the portion of the order imposing penalty, the appeal has been partly allowed. Being aggrieved by the same, the appellant has preferred the Civil Miscellaneous Appeal.

The main contention of the appellant is that they should be allowed to pay duty from CENVAT Credit because, as per Section 3A of the Act, 1944, assessees were only prohibited from taking or availing cenvat credit, during the period from 01.09.1997 to 31.03.2000 and that there was no bar for utilizing the credit earned after the lapse of the scheme, for discharging the arrears of duty during the period, covered under the Scheme.

Per contra, placing reliance on a decision of High Court in Kalaimagal alloys Steel Pvt. Ltd., v. CESTAT, Chennai the Senior Standing Counsel appearing for the respondent submitted that during the period of compounded levy scheme, the question of adjusting cenvat credit, does not arise. He further submitted that when the scheme has taken away the right of the manufacturers to avail cenvat credit, the consequences thereof, is to make payment of duty only in cash, within the period provided therefor, under Rule 96ZO of the Central Excise Rules, 1944.

After hearing both sides, the High Court held:

++ Reading of the provisions, when the Compounded Levy Scheme, was in force, in entirety, makes it clear, as to how, the manufacturer of non-alloy steel ingots and billets, have to make the payment, in the current account, maintained by the manufacturer, under sub-rule (1) of rule 173G of the Central Excise Rules, 1944. As per the scheme, any unutilised balance of input credit and capital goods, lying with the manufacturer, shall lapse forthwith. Therefore, from 1st September' 1997 till 31st March' 2000, duty has to be paid and cenvat credit cannot be availed. Compounded levy scheme also stipulates the time for payment of duty. The then existing provision also provided for imposition of penalty for failure to pay the total amount of duty, payable within the period provided therefor, in the manner, as provided therefor, under the compounded levy scheme.

++ After recording a categorical finding that the appellant has not paid the entire duty amount of Rs.43,12,500/-, through personal ledger account and taking note of the payment of Rs.27,25,000/- through Personal Ledger Account, the Commissioner of Central Excise, has demanded a sum of Rs.16,06,507/-, to be paid through the personal ledger account.

++ Though the appellant has contended that when the revenue has not chosen to file an appeal against the judgment High Court in Commissioner of Central Excise, Ludhiana v. Punjab Casting Pvt. Ltd., reported in 2014 (306) ELT 612 (P & H) ,, as there was no revenue loss and that the said decision can be made applicable to the facts of the instant case, the same cannot be accepted for the reason that in the above reported judgment, there is no occasion for the Punjab and Haryana High Court to consider the decision of the Hon'ble Supreme Court in Hans Steel Rolling Mill v. Commissioner of Central Excise, Chandigarh - 2011-TIOL-30-SC-CX.

++ When the judgment of the Hon'ble Supreme Court has declared that the compounded levy scheme as a comprehensive scheme and also categorically held that the general provisions of the Act and the Rules, are excluded, and further held that the assessee opting for the scheme, is bound by the terms of that particular scheme, reliance made on the decision of the Punjab and Haryana High Court in Punjab Casting Pvt. Ltd.,'s case, is not tenable, as the law of the land is binding.

++ The contention of the appellant, based on the Bombay High Court judgment that payment of duty is only procedural and by utilizing cenvat credit for payment of central excise duty, is only revenue neutral and the other contentions on general principles, also cannot be accepted in the light of the subsequent decision of the Hon'ble Supreme Court in Hans Steel Rolling Mill's case, which has exclusively dealt with the compounded levy scheme.

++ On the issue of penalty, question of law is answered in favour of the assessee.

(See 2016-TIOL-2203-HC-MAD-CX)