Excise duty payment after default: can manufacturers use CENVAT credit instead of account current during forfeiture? Allowed

The dominant issue was whether a manufacturer, having defaulted and thereby forfeited the facility of periodic duty payment under the relevant Central Excise Rules, could nonetheless discharge excise duty on clearance of final products by utilising CENVAT credit instead of debiting the account current. The HC noted that the Rules require payment for each consignment by debit to the account current during the forfeiture period, but also accepted the undisputed position that duty liability can be discharged either by account current or by CENVAT credit, and relied on the CBEC circular dated 20-01-1998 treating CENVAT credit utilisation as equivalent to payment through account current. Consequently, the petitioner was held prima facie entitled to utilise CENVAT credit for payment of excise duty.

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Issues involved: Interpretation of Rule 49(e)(i) and (ii) regarding forfeiture of facility to pay duty in instalments for default, entitlement to utilize CENVAT credit for payment of Central Excise duty.

The judgment of the High Court of Judicature at Bombay in 2001 (2) TMI 150 dealt with the interpretation of Rule 49(e)(i) and (ii) concerning the forfeiture of the facility to pay duty in instalments for default. The court noted that the revenue failed to provide any provision indicating that the petitioner is not entitled to utilize the CENVAT credit for paying Central Excise duty on the clearance of the final product. The notification dated 31st March, 2000, particularly Rule 49(e)(i) and (ii) were highlighted, outlining the consequences of default by a manufacturer in payment of duty.

The court acknowledged that the petitioner, a manufacturer, had defaulted on the facility granted to discharge duty liability by debiting the account current or utilizing CENVAT credit. As per the provisions, in case of default, the manufacturer forfeits the facility to pay dues in instalments for a specified period and is required to pay excise duty for each consignment by debiting the account current. It was established that the liability to pay duty could be discharged by debiting the account current or utilizing CENVAT credit, supported by a circular issued by the Central Board for Excise and Customs on 20-1-1998.

Conclusively, the court found that prima facie, the petitioner is entitled to utilize CENVAT credit for the payment of Central Excise duty on the clearance of the final product, based on the interpretation of the relevant rules and provisions presented during the proceedings.

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