2013 (9) TMI 417 - AT - Central Excise

Appellant Liable for Interest on Central Excise Duty Default

The appellant defaulted in payment of central excise duty, leading to a requirement to discharge duty in cash and not through cenvat credit. The Tribunal ... Prohibition on utilization of CENVAT credit during default period under Rule 8(3A) - liability to pay interest for period of CENVAT utilisation during default - consequence of default: duty payment, interest and penalties - penalty under Rule 25 not attracted for non wilful/default without intent to evade - penalty consequences under Rule 27Prohibition on utilization of CENVAT credit during default period under Rule 8(3A) - liability to pay interest for period of CENVAT utilisation during default - consequence of default: duty payment, interest and penalties - Whether payment of duty by utilising CENVAT credit during the period of default attracts recovery of duty and interest under Rule 8(3A) and whether such payment discharges duty liability. - HELD THAT: - The Court construed Rule 8(3A) to mean that once an assessee defaults in payment of duty beyond thirty days from the due date, the assessee must pay excise duty for each consignment at the time of removal without utilising CENVAT credit until the outstanding amount (with interest) is paid. Accordingly, utilisation of CENVAT during the default period is contrary to the Rule. However, where transactions are recorded in statutory records and the duty is eventually paid, it cannot be said that no duty was paid; the revenue's loss is confined to interest for the period from utilisation of CENVAT until cash payment of the outstanding duty. The Tribunal therefore held that interest is payable for the period of inappropriate CENVAT utilisation, but the duty paid through CENVAT after subsequent cash payment of the defaulted amount will be treated as proper discharge subject to interest liability. The Tribunal followed the reasoning in Solar Chemferts (paras 13-15) on this point. [Paras 3]Appellant was not entitled to utilise CENVAT credit during the default period; duty paid via CENVAT does not avoid liability to pay interest for the period of default, and interest is payable accordingly.Penalty under Rule 25 not attracted for non wilful/default without intent to evade - penalty consequences under Rule 27 - Whether penalty under Section 11AC read with Rule 25 of the Central Excise Rules is attracted where differential duty (recorded in ER 1) was not paid from PLA but later discharged and whether wilful suppression to evade duty was established. - HELD THAT: - The Tribunal examined the imposition of penalty under Rule 25 and concluded that where the differential duty liability was discharged and transactions were shown in returns (with reconciliation mechanisms in assessment), there was no wilful suppression or intention to evade duty. Reliance on Manipal Springs supported this view. While Solar Chemferts addresses penalties (noting Rule 27 may apply), the Tribunal found Rule 25 inapplicable on the facts and set aside the penalty imposed under Section 11AC read with Rule 25. [Paras 4]Penalty under Section 11AC read with Rule 25 is not attracted on the facts; the appellant is not liable to the penalty imposed under Rule 25.Final Conclusion: Appeal allowed: Rule 8(3A) prohibits use of CENVAT credit during the default period and interest is payable for the period of such utilisation, but duty paid subsequently through CENVAT after the default is regularised does not negate payment of duty; penalty under Section 11AC read with Rule 25 is not attracted in the present facts and is set aside. Issues involved:1. Default in payment of central excise duty under Rule 8(3A) of the Central Excise Rules, 2002.2. Utilization of cenvat credit during the default period.3. Liability to pay interest for default period.4. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.Analysis:1. Default in Payment of Central Excise Duty:The appellant defaulted in payment of central excise duty of Rs.3,76,855/- for the period from April 2009 to March 2010 as per Rule 8(3A) of the Central Excise Rules, 2002. The duty was not paid leading to default, and the appellant was required to discharge the duty from the PLA consignment wise. The issue was whether payment made through cenvat credit during the default period instead of cash invites recovery of duty and penalties. Rule 8(3A) mandates duty payment in cash for defaults beyond 30 days from the due date, without utilizing cenvat credit until the outstanding amount is paid. The appellant's duty was paid from RG 23, causing a loss of revenue only in interest for the period from cenvat credit utilization until full cash payment. The appellant was held liable to pay interest for this period.2. Utilization of Cenvat Credit:The appellant utilized cenvat credit amounting to Rs.94,638/- during the default period when duty was required to be paid in cash. The Tribunal held that payment through cenvat credit during default does not discharge duty obligations. The duty paid through cenvat credit becomes proper only after the default amount is paid in cash, attracting interest until then. The Tribunal cited a previous case to support this view, emphasizing that interest and penalty are payable until proper discharge of duty is made.3. Liability to Pay Interest for Default Period:The Tribunal determined that the appellant is liable to pay interest at the applicable rate for the period from cenvat credit utilization until full cash payment of duty. The duty payment through cenvat credit during the default period did not absolve the appellant from the obligation to pay interest until the duty was fully discharged in cash.4. Imposition of Penalty under Section 11AC:Regarding the imposition of penalty under Section 11AC of the Central Excise Act, 1944, the Tribunal found that the appellant had discharged the entire differential duty liability as shown in the returns. There was a mechanism for reconciliation of duty payments through assessments, indicating no willful suppression to evade duty. Citing a relevant case, the Tribunal concluded that no penalty under Rule 25 of the Central Excise Rules applied in this case. Consequently, the appellant's appeal was allowed based on the above analysis, and no penalty under Rule 25 was imposed.This detailed analysis of the judgment highlights the issues of default in duty payment, cenvat credit utilization, liability for interest, and imposition of penalties, providing a comprehensive understanding of the Tribunal's decision in the case.