2015 (8) TMI 404 - SC - Central Excise

Supreme Court allows Cenvat Credit use during payment suspension

The Supreme Court allowed the appeals, setting aside the decision of the CESTAT. It held that the appellant was entitled to utilize Cenvat Credit during ... Demand of interest - whether the excise duty was in fact deposited late and therefore interest would be charged - Held that:- Section 11A of the Act permits the Central Excise Officer to recover duty not levied or not paid or short levied or short paid or erroneously refunded. It can be done within one year from the relevant date by serving show cause notice on the person chargeable with the duty. It is not necessary to state in detail the procedure prescribed therein. For our purposes it is sufficient to mention that Section 11AA of the Act provides that where a person chargeable with duty determined under Section 11A fails to pay such duty within three months from the date of such determination, he is liable to pay interest on the delayed period which is at the rate not below 18% and not exceeding 36% p.a. as for the time being fixed by the Central Government by Notification in the Official Gazette. Utilization of Cenvat Credit for delayed payment of duty - Held that:- Appellant paid the duty on clearing each consignment. Substantial portion of the duty, i.e., to the tune of ₹ 7 crores was paid in account current through PLA. However, for payment of small portion of a duty which was in the neighbourhood of ₹ 31 lakhs, the appellant utilised Cenvat Credit Account. It is this payment from Cenvat Credit which has become the bone of contention. The respondent communicated to the appellant that duty through Cenvat during this period, when facility under Rule 173G was withdrawn, is not permissible. Without demur, the appellant complied with the demand of the respondent by paying this portion of duty also through account current. However, this happened in May, 2002. The respondent now took the position that the custom duty of ₹ 31 lakhs was paid belatedly. As it was paid only in May, 2002, on this delayed payment, appellant was liable to pay interest @ 24% p.a. from the period from 19.12.2000 to 20.05.2002. Order-in-Original dated 13.06.2002 passed by the Commissioner affirming the demand in show cause notice has been confirmed by the Tribunal. It is imperative to point out that even the Department accepted the opinion of the High Courts. For this reason, judgments rendered by the High Courts were not challenged and instead to remedy the situation, Rule 8 of the Central Excise Rules, 2002 itself is amended by inserting sub-rule 3A vide Notification No.17/05-C.E. (N.T.) dated 31.03.2005 w.e.f. 01.04.2005. This Rule now specifically provides that in case of default in making payment of duty, the assessee shall be required to pay excise duty for each consignment by debit to the account current and not by utilising Cenvat Credit. This also lends credence to our view which we have taken in respect of unamended provision that was applicable at the relevant time. - Impugned order is set aside - Decided in favour of assessee. Issues Involved:1. Whether the excise duty was deposited late, warranting interest charges.2. Whether the appellant could utilize the Cenvat Credit during the period when the facility of fortnightly payment of duty was suspended.Detailed Analysis:Issue 1: Late Deposit of Excise Duty and Interest ChargesThe core issue in these appeals pertains to the demand of interest calculated on the dues of excise duty, which were allegedly deposited late. The period in question is from 19.12.2000 to 18.02.2001. The appellant, a manufacturer of pig iron and scrap of iron, was initially allowed to pay excise duty every fortnight. However, due to delays in payment in the months of August, October, and November 2000, the Revenue Authorities suspended this facility and required the appellant to pay duty on a consignment basis for two months. The appellant complied by paying around Rs. 7 crores in cash through the account current (PLA) and utilized Rs. 31 lakhs from the Cenvat Account. The authorities contended that the use of Cenvat Credit was not permissible during this period, leading to a demand for interest at 24% per annum for the delayed payment. The Commissioner and the CESTAT affirmed this view, leading to the present appeal.Issue 2: Utilization of Cenvat Credit During Suspension PeriodThe main question is whether the appellant could utilize the Cenvat Credit during the two-month period when the facility for fortnightly payment under Rule 173G was suspended. The appellant argued that payment through the Cenvat account was valid. The Tribunal, however, held that payment of duty by debiting the Cenvat Credit was not permissible during the said period, amounting to non-payment of duty and thereby attracting interest.Legal Provisions and Interpretation:Relevant Rules and Sections:- Section 11A and 11AA of the Central Excise Act: These sections deal with the recovery of duty not levied or paid and the imposition of interest on delayed payments.- Rule 9 and Rule 173G of the Central Excise Rules, 1944: Rule 9 stipulates the time and manner of payment of duty, while Rule 173G outlines the procedure for discharging duty liability, including the maintenance of an account current and the utilization of Cenvat Credit.Analysis of Rule 173G:- Sub-rule (1)(b): Allows the discharge of duty liability by debiting the account current or by utilizing Cenvat Credit.- Sub-rule (1)(e): Specifies that in case of default, the facility to pay dues in installments is forfeited for two months, and duty must be paid for each consignment by debit to the account current.The Tribunal's interpretation that the appellant's subsequent cash payment indicated acceptance of the non-permissibility of Cenvat Credit was incorrect. The Supreme Court emphasized that there is no estoppel against law, and the legal permissibility of using Cenvat Credit had to be examined independently.Judicial Precedents and Departmental Understanding:The Supreme Court referred to its earlier decision in Commissioner of Central Excise, Pune v. Dai Ichi Karkaria Limited, which described credit under the Modvat scheme as 'as good as tax paid.' This understanding was crucial in determining that the mode of payment through Cenvat Credit is valid.High Court Rulings:Several High Courts had interpreted similar provisions, concluding that even when the facility of payment in installments is withdrawn, excise duty can be paid through Cenvat Credit. The Kerala High Court in Thanikkudam Bagawati Mills Limited v. The Commissioner of Central Excise, Calicut held that Rule 173G does not negate the benefit of utilizing Cenvat Credit unless specifically amended.Conclusion:The Supreme Court concluded that the appellant was entitled to utilize Cenvat Credit even during the period when the facility of fortnightly payment was suspended. The Department's subsequent amendment of the rules to explicitly prohibit the use of Cenvat Credit during default periods further supported this interpretation. Consequently, the appeals were allowed, and the decision of the CESTAT was set aside.Final Judgment:The appeals are allowed, and the decision of the CESTAT is set aside. The appellant was entitled to use Cenvat Credit during the suspension period, and the demand for interest on the alleged delayed payment was not justified.