2012 (12) TMI 856 - HC - Central Excise

Court rules in favor of Department, orders deposit of excess duty with Central Govt under Central Excise Act.

COMMISSIONER OF C. EX., AHMEDABAD-II Versus INDUCTOTHERM (I) PVT. LTD.

COMMISSIONER OF C. EX., AHMEDABAD-II Versus INDUCTOTHERM (I) PVT. LTD. - 2012 (283) E.L.T. 359 (Guj.) Issues Involved:1. Applicability of Section 11D of the Central Excise Act, 1944.2. Validity of duty payment through Cenvat Credit as per Section 11D.3. Alleged breach of Cenvat Credit Rules by the respondent.4. Recovery of differential duty amount and interest.5. Imposition of penalty under Rule 13 of Cenvat Credit Rules, 2002/Rule 15 of Cenvat Credit Rules, 2004.6. Limitation period for initiating recovery proceedings.Detailed Analysis:1. Applicability of Section 11D of the Central Excise Act, 1944:The Tribunal held that Section 11D did not apply as the duty collected was deposited with the Government by making a debit entry in the Cenvat credit account. However, the High Court disagreed, stating that since no manufacturing activity was undertaken, the goods removed on an 'as such' basis were not exigible to excise duty. Therefore, the respondent could not collect any charge as excise duty. The collected amount had to be deposited with the Central Government as per Section 11D.2. Validity of Duty Payment through Cenvat Credit as per Section 11D:The Tribunal opined that payment through Cenvat credit is valid. The High Court, however, emphasized that utilization of Cenvat credit for unauthorizedly collected excise duty was impermissible under the Rules. The duty collected in excess or as representing excise duty had to be paid to the Central Government forthwith, which was not done by the respondent.3. Alleged Breach of Cenvat Credit Rules by the Respondent:The Department alleged that the respondent cleared goods without manufacturing activity at an inflated price and collected duty in the guise of excise duty. The High Court found merit in the Department's contention, noting that the respondent did not follow the procedure laid down in Rule 3(4) of the Rules, 2002 and Rule 3(5) of the Rules, 2004. The collected amount was deposited as Cenvat credit, which was not permissible.4. Recovery of Differential Duty Amount and Interest:The Commissioner confirmed the duty demand and ordered recovery of Rs. 2,05,33,931/- with interest. The High Court upheld this decision, stating that the collected amount representing excise duty had to be deposited with the Central Government under Section 11D. The Tribunal's view that the respondent could have encashed the unutilized credit was deemed fallacious.5. Imposition of Penalty under Rule 13 of Cenvat Credit Rules, 2002/Rule 15 of Cenvat Credit Rules, 2004:The Commissioner imposed a consolidated penalty of Rs. 5 lacs for breach of rules with an ulterior motive. The High Court upheld the penalty, noting the large number of transactions and the maximum penalty of Rs. 10,000/- per transaction. The Tribunal's decision to drop the penalty was overturned.6. Limitation Period for Initiating Recovery Proceedings:The respondent argued that the proceedings were barred by limitation. The High Court noted that Section 11D does not provide a rigid time limit, and as long as recovery proceedings are initiated within a reasonable time, they cannot be struck down as time-barred. The High Court found no evidence of undue delay by the Department in raising the demand.Conclusion:The High Court allowed the appeal, reversed the Tribunal's judgment, and restored the Commissioner's order. The questions were answered in favor of the Department and against the respondent. The collected amount had to be deposited with the Central Government, and the penalty imposed was justified.