2012 (2) TMI 423 - AT - Central Excise

Clarification on Excise Duty Payment Default & Cenvat Credit Validity

The Tribunal clarified that once a default in excise duty payment is rectified with interest, payments made through Cenvat credit during the defaulting ... Duty demand - Duty as per Rule 8 of the Central Excise Rules, 2002 - Held that:- Rule 8(3A) prescribed only that the goods will be treated as non-duty paid and the consequence prescribed under Central Excise Rules will follow. It does not say that any consequences under Cenvat Credit Rules, 2004 will follow. That is to say the assessee is entitled to take credit during the defaulting period. The only consequence of Rule 8(3A) can be that payment through Cenvat credit cannot be the proper discharge of duty liability when the default continues. But once the default is made good, along with interest we prima facie, do not see any reason to hold that the payment made through Cenvat credit during the period of default cannot be considered as good payment - Following decision of CCE v. Saurashtra Cements - [2010 (9) TMI 422 - GUJARAT HIGH COURT] has held that in such situation penalty under Rule 27 of Central Excise Rules only will apply which will be a small amount only - Conditional stay granted. Issues:1. Interpretation of Rule 8(3A) of the Central Excise Rules, 2002 regarding utilization of Cenvat credit during default in payment of excise duty.2. Legality of demanding excise duty already paid through Cenvat credit during the defaulting period.3. Imposition of penalties under Rule 25 and Rule 27 of the Central Excise Rules.Analysis:Issue 1: Interpretation of Rule 8(3A) of the Central Excise Rules, 2002The case involved a dispute regarding the utilization of Cenvat credit during default in the payment of excise duty. The Revenue contended that Rule 8(3A) explicitly prohibits the utilization of Cenvat credit during default, treating goods as non-duty paid. However, the Tribunal observed that while the rule deems goods as non-duty paid during default, it does not specify that consequences under Cenvat Credit Rules, 2004 would apply. The Tribunal concluded that once the default is rectified with interest, payments made through Cenvat credit during the defaulting period should be considered valid.Issue 2: Demand for Excise Duty Paid Through Cenvat CreditThe Appellants argued that demanding excise duty already paid through Cenvat credit during the defaulting period was legally unsustainable. They contended that Cenvat credit payments were equivalent to payments through PLA. The Tribunal acknowledged the Appellants' position, emphasizing that once the default is rectified with interest, payments made through Cenvat credit should be recognized as valid discharge of duty liability.Issue 3: Imposition of PenaltiesThe Revenue proposed penalties under Rule 25 and Rule 27 of the Central Excise Rules. The Appellants contested the penalties, citing financial constraints as the reason for delayed payment of duty. The Tribunal referenced a precedent where it was held that in such situations, only a nominal penalty under Rule 27 would apply. Consequently, the Tribunal ordered the calculation and deposit of interest by the Appellants within a specified timeframe, staying the recovery of the remaining dues pending compliance.In conclusion, the judgment clarified the interpretation of Rule 8(3A) regarding Cenvat credit utilization during default, upheld the validity of excise duty payments made through Cenvat credit, and ordered the calculation and deposit of interest while addressing the imposition of penalties in line with legal precedents.