Duty payment through Cenvat credit during forfeited fortnightly facility was impermissible, supporting confiscation and penalty.

During forfeiture of the fortnightly duty-payment facility, Rule 173G(1) of the Central Excise Rules, 1944 required duty on each consignment to be paid by debiting the account current; payment through Cenvat credit was not permitted. A clearance made in breach of that requirement was treated as a clearance without payment of duty, so confiscation and penal action could follow. Where the duty and interest were paid immediately after the defect was pointed out, the monetary consequences could be reduced substantially. The commentary states that confiscation and penalty were upheld, while the penalty and redemption fine were reduced to Rs. 10,000 each.

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Issues: Whether, during the period when the facility of fortnightly payment of duty stood forfeited, duty could be paid through Cenvat credit and, if not, whether the goods were liable to confiscation with penalty and redemption fine.

Analysis: Rule 173G(1) of the Central Excise Rules, 1944 required the manufacturer, during the period of forfeiture of the fortnightly payment facility, to pay duty for each consignment by debiting the account current. Payment through Cenvat credit during that restricted period was contrary to the rule and attracted the statutory consequence that the goods would be treated as cleared without payment of duty. On that footing, confiscation and penal action were warranted. However, the fact that the entire duty was subsequently paid along with interest immediately after the defect was pointed out justified substantial reduction in the monetary consequences.

Conclusion: The liability to confiscation and penalty was upheld, but the penalty and redemption fine were reduced to Rs. 10,000 each.

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