2024 (5) TMI 7 - HC - Central Excise

Compounding scheme under Section 3A cannot be withdrawn mid-year after paying fees for financial year

M/s. Raman Ispat Pvt. Ltd. Versus CCE Meerut

The Allahabad HC dismissed the application regarding withdrawal from the compounding scheme under Section 3A of the Central Excise Act. The court held ... Withdrawal of Compounding scheme - Declaration made in the year 1997-98 can be treated as the declaration for the year 1998-99 under Section 3A of the Central Excise Act read with Rule 96ZO(3) of the Central Excise Rules, 1944 or not - whether the present applicant had withdrawn its offer at the beginning of the Financial Year 1998-99? - HELD THAT:- The first communication that the applicant wrote to the revenue authorities is dated 15.6.1998 when it indicated its intent to discharge duty liability on actual production basis. However, prior to that date, for the month of April, 1998, the applicant had already discharged duty liability on compounded basis. Having done that, the applicant had clearly indicated to the revenue authorities its intent to remain under the benefit of the compounding scheme for the Financial Year 1998-99. It is self-contradicted contention being advanced that though the applicant had paid up the compounding fee for the month of April, 1998, it had not agreed to be retained under the benefit of the compounding scheme. As to the mode in which the applicant may ever have applied to discontinue the benefit of the compounding scheme, Rule 96ZO(3) of the Rules leaves no doubt that a declaration was required to be filled by the applicant to be admitted to the benefit of the compounding scheme. It must have been filled at the relevant time i.e. August, 1998, in terms of the said provision. Clearly, the applicant was not required to submit the same on year to year basis. Once the scheme has been interpreted by the Supreme Court, it is mandatory that option once exercised for a financial year, may not be withdrawn midway. The only recourse that applicant may have taken may be to apply to the jurisdictional authority to discontinue the benefit of the compounding scheme from the beginning of the next Financial Year i.e. 1.4.1998. For such option to be exercised, the applicant ought to have made that application before the date i.e. 1.4.1998, and in any case before making the deposit of the compounding fee for the month of April, 1998. Having done otherwise, the applicant lost the opportunity to withdraw from the compounding scheme for the Financial Year 1998- 99. Application dismissed. Issues Involved:1. Applicability of the declaration made in the year 1997-98 to the year 1998-99 under Section 3A of the Central Excise Act read with Rule 96ZO(3) of the Central Excise Rules, 1944.2. Validity and enforceability of the compounded duty payment scheme.3. Withdrawal of the option to pay excise duty on a compounded basis during a financial year.Summary:1. Applicability of the Declaration:The primary issue was whether the declaration made by the applicant in the year 1997-98 could be treated as the declaration for the year 1998-99 u/s 3A of the Central Excise Act read with Rule 96ZO(3) of the Central Excise Rules, 1944. The court found that the applicant did not make any fresh application at the beginning of the Financial Year 1998-99 to either continue under or withdraw from the compounding scheme. The applicant's first communication expressing intent to pay duty on an actual production basis was dated 15.6.1998. However, the applicant had already paid the compounded duty for April 1998, indicating its intent to remain under the compounding scheme for the Financial Year 1998-99.2. Validity and Enforceability of the Compounded Duty Payment Scheme:The court recognized that the lump sum method introduced by the Finance Act, 1997, through Section 3A of the Act and Rule 96ZO(3) of the Rules, was a legislatively valid and enforceable alternative method of assessment for payment of excise duty on a compounded basis. This method was based on the agreement between the assessee/manufacturer and the revenue authorities. The Supreme Court's decision in Commissioner of C. Ex. & Customs Vs. Venus Castings (P) Ltd., 2000 (117) E.L.T. 273 (S.C.) was cited to affirm that the compounded duty payment scheme is a valid alternative to the conventional levy of excise duty on an actual production/removal basis.3. Withdrawal of the Option to Pay Excise Duty on a Compounded Basis:The court held that once the option to pay excise duty on a compounded basis was exercised for a financial year, it could not be withdrawn midway. The applicant had to make an application to discontinue the benefit of the compounding scheme before the beginning of the next Financial Year (i.e., before 1.4.1998). Since the applicant paid the compounded duty for April 1998, it indicated the intent to remain under the compounding scheme for the Financial Year 1998-99. The court concluded that the applicant lost the opportunity to withdraw from the compounding scheme for the Financial Year 1998-99 by not making the application before the specified date.Conclusion:The question referred was answered in the affirmative in favor of the revenue and against the assessee. The application was dismissed.