PLA only during forfeiture of fortnightly duty payment facility; Cenvat credit use attracted interest and penalty.

During the period of forfeiture of the fortnightly duty payment facility under Rule 173G(1)(e), "account current" was construed to mean PLA only, not utilisation of Cenvat credit, because the clause was treated as a restricted and penal provision. Duty paid by debiting Cenvat credit during that period was therefore contrary to the rule and attracted the statutory consequences of clearance without payment of duty. Interest and penalty were held sustainable, although the penalty was reduced to Rs. 1 lakh. The assessee obtained only partial relief on quantum, not on liability.

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Issues: (i) Whether, during the period of forfeiture of the facility to pay duty on a fortnightly basis under Rule 173G(1)(e), duty on each consignment could be discharged by debiting the Cenvat credit account as part of the "account current", or whether payment had to be made only from PLA. (ii) Whether payment of duty through the Cenvat credit account during such period attracted interest and penalty.

Issue (i): Whether, during the period of forfeiture of the facility to pay duty on a fortnightly basis under Rule 173G(1)(e), duty on each consignment could be discharged by debiting the Cenvat credit account as part of the "account current", or whether payment had to be made only from PLA.

Analysis: Rule 173G(1)(b) contemplated two distinct modes of discharge of duty liability, namely, debit to account current and utilisation of Cenvat credit. Rule 173G(1)(e), however, used only the expression "account current" for the restricted period of forfeiture, and the provision was treated as penal in character. On that construction, the reference in clause (e) could not be expanded to include Cenvat credit. The Tribunal also relied on prior decisions and departmental understanding showing that "account current" in central excise practice referred to PLA.

Conclusion: The duty had to be paid only through PLA and not by debit to the Cenvat credit account; the view was against the assessee.

Issue (ii): Whether payment of duty through the Cenvat credit account during such period attracted interest and penalty.

Analysis: Since the payment through Cenvat credit account was treated as contrary to Rule 173G(1)(e), the deeming consequence under the rule was that the goods were cleared without payment of duty, thereby attracting the statutory consequences. The existence of a separate plea regarding subsequent reversal was treated as factual and left to be examined at the original level, but it did not displace the legal consequence flowing from the rule. Penalty was invoked under both the penal rule and Section 11AC, and the Tribunal held that interest and penalty were attracted, though the quantum of penalty was reduced.

Conclusion: Interest and penalty were sustainable, but the penalty was reduced to Rs. 1 lakh; the view was against the assessee on liability, with partial relief on quantum.

Final Conclusion: The appeal failed on the substantive classification of the payment mode and on the applicability of consequential interest and penalty, but the penalty was scaled down, resulting in only limited relief to the assessee.

Ratio Decidendi: During the temporary forfeiture of the fortnightly payment facility under Rule 173G(1)(e), "account current" means PLA and does not include Cenvat credit; payment through credit during that period contravenes the rule and attracts the statutory consequences of interest and penalty.

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