Fortnightly duty-payment withdrawal requires payment through PLA, not Cenvat credit, and excessive penalty may be reduced.

Withdrawal of the fortnightly duty-payment facility under the Central Excise Rules required the assessee to discharge duty only through account current, treated here as PLA, and not by utilising Cenvat credit during the withdrawal period. The contravention finding was upheld because payment through Cenvat credit was impermissible while the withdrawal order remained in force. The penalty was considered disproportionate in light of the duty and interest already paid, so it was reduced as excessive.

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Issues: (i) Whether, after withdrawal of the fortnightly payment facility under the Central Excise Rules, 2001, the assessee could discharge duty liability through Cenvat credit or was required to pay only through account current/PLA; (ii) Whether the penalty imposed for the contravention was excessive and liable to be reduced.

Issue (i): Whether, after withdrawal of the fortnightly payment facility under the Central Excise Rules, 2001, the assessee could discharge duty liability through Cenvat credit or was required to pay only through account current/PLA.

Analysis: Rule 8(4) was construed to mean that an assessee debarred from the facility of paying duty on a fortnightly basis must discharge duty only through account current. The expression "account current" was held to refer to PLA, as clarified by the Central Excise Manual. Accordingly, once the facility stood withdrawn for non-compliance, payment through Cenvat credit was not permissible during the currency of that order.

Conclusion: The assessee was not entitled to use Cenvat credit during the period of withdrawal and the finding of contravention was upheld.

Issue (ii): Whether the penalty imposed for the contravention was excessive and liable to be reduced.

Analysis: The duty and interest had already been paid, and the extent of penalty was considered disproportionate to the nature of the lapse. On that assessment, the penalty was treated as excessive.

Conclusion: The penalty was reduced from Rs. 1,00,000 to Rs. 35,000.

Final Conclusion: The appeal succeeded only to the extent of reduction of penalty, while the substantive finding of contravention and liability to pay duty through account current during the withdrawal period was maintained.

Ratio Decidendi: When the facility of fortnightly payment is withdrawn under the excise rules, duty must be discharged through account current and not by utilising Cenvat credit for that period.

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