TaxTMI 
TaxTMI 
2017 (8) TMI 594
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....and ultra vires. It is further prayed to quash and set aside the impugned show cause notice dated 18/09/2015 (Annexure - B) and the demand of duties, interest and penalties proposed. [2.0] The facts leading to the present Special Civil Application in nutshell are as under; [2.1] Petitioner no.1 is a manufacturer of excisable goods and are clearing all such excisable goods manufactured by it on payment of duties and has been availing the benefit of CENVAT Credit Scheme as regards the duties paid on inputs and capital goods as well as input services used in relation to manufacture of excisable goods. Petitioner no. 1 has been maintaining all statutory records, including CENVAT Register, PLA, RG-1 etc.. It is not in dispute that petitioner no.1 has also been submitting documents like central excise invoices and returns in accordance with the Central Excise Rules. [2.2] It is the case on behalf of petitioner no.1 that though the duty of excise is a tax on manufacture of goods, by virtue of Rule 8 of the Central Excise Rules, 2002, a manufacturer is required to pay excise duty on monthly basis and not on each clearance of the excisable goods made from the factory of the manufacturer.....
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....sent case, petitioner no.1 Company has utilized CENVAT Credit during the month in which the excise duty for the goods cleared in the previous month was paid. According to the Excise Department, considering the proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules, petitioner no.1 - Company could not have utilized the CENVAT Credit taken in the beginning of a particular month while discharging the duty liability for the goods cleared in the previous month, and therefore, the petitioner no.1 - Company is held to be defaulter in payment of excise duty. [2.4] On the basis of the audit enquiry, show cause notice dated 18/09/2015 has been served upon petitioner no.1 Company thereby proposing to recover an amount of Rs. 83,52,354/- as short payment of central excise duty under the provisions of Section 11A of the Central Excise Act read with Rule 8(3) of the Central Excise Rules. The said demand is proposed on the basis that petitioner no.1 had wrongly utilized CENVAT Credit availed in the month subsequent to the month in which the duty liability accrued thereby contravening proviso to Sub Rule (4) to Rule 3 of the CENVAT Credit Rules. The said show cause notice further proposed r....
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.... rules to provide for allowing credit of duty paid on inputs and capital goods but not to make rules for imposing unreasonable restrictions about utilization of CENVAT Credit. It is submitted that by virtue of Clauses (xvia) and (xviaa) of Sub Section (2) of Section 37 of the Central Excise Act, the Parliament has empowered the Central Government to make Rules to provide for credit of duty paid on the goods used in or in relation to the manufacture of excisable goods. It is submitted that the aforesaid provisions confers the powers to the Central Government to provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to the manufacture of excisable goods. It is submitted that pursuant to the said power, CENVAT Credit Rules have been framed and benefit of CENVAT Credit has been extended. It is submitted that the said Sub Section though confers powers on the Central Government for providing credit and also provides for the procedure but it does not confers the power to the Central Government to impose any restriction on the power to utilize such legally availed CENVAT Credit. It is further submitted that the power to restrict the utilization....
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....ion of CENVAT Credit availed in particular month for the goods manufactured in the preceding month thereby seeking to enjoin upon the manufacturer the said principle of one to one correlation which has no application under the said Scheme as invalid and unconstitutional. Making the above submissions and relying upon the above decisions, it is requested to allow the present petition to declare the first proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules as unconstitutional, illegal and ultra vires to Rule 3 of the CENVAT Credit Rules and ultra vires to Section 37 of the Central Excise Act and consequently to quash and set aside the impugned show cause notice. [4.0] The present petition is vehemently opposed by Shri Devang Vyas, learned Assistant Solicitor General of India appearing on behalf of respondent no.1 and Shri Priyank Lodha, learned advocate appearing on behalf of respondents nos.2 and 3. [4.1] An affidavit-in-reply is filed on behalf of respondent no.1 as well as respondent no.3. In the affidavit-in-reply filed on behalf of the respondents an objection is raised with respect to the territorial jurisdiction of this High Court in entertaining the present petition....
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....eeded its jurisdiction in framing the impugned Rules. [4.5] It is submitted that Rule 3(1) deals with the aspect of taking credit whereas Rule 3(4) deals with the aspect of utilization of the said credit. It is submitted that both the Rules deals with absolutely different aspects and there is no linkage between the two. It is further submitted that the first proviso to Sub Rule (4) of Rule 3 of the CENVAT Credit Rules restricts utilization of CENVAT Credit up to the balance available on the last day of the month or quarter for payment of duty relating to that month or quarter. It is submitted that the Government has extended the facility to the assessee in terms of Rule 8(1) of the Central Excise Rules. It is submitted that for payment of Central Excise duty the time period of one calendar month has been taken as payment cycle. It is submitted that though the assessee is allowed to pay the duty by 5th /6th of the following month, the duty is payable immediately on removal of goods. It is submitted that CENVAT Credit is a facility to avoid cascading effect of duties. The CENVAT Credit is governed by the CENVAT Credit Rules and the CENVAT Credit Rules are amended from time to time f....
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....f the Central Excise Act, 1944 and Rule 3 of the CENVAT Credit Rules are required to be referred to, which reads as under; "SECTION 37. Power of Central government to make rules.- (1) The Central Government may make to carry into effect the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may- [(i) provide for determining under section 4 the nearest ascertainable equivalent of the normal price; (ia) having regard to the normal practice of the wholesale trade, define or specify the kinds of trade discount to be excluded from the value under section 4 including their circumstances in which and the conditions subject to which such discount is to be so excluded;] [(ib) provide for assessment and collection of duties of excise, the authorities by whom functions under this Act are to be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable, and the recovery of duty not paid; [(ibb)provide for charging or payment of interest on the differential amount of duty which becomes payable or refundable upon finalisation of all or any class of provisional assessments;] [(....
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....der license, and of goods on which duty has been paid, or which are exempt from duty under this Act; (x) impose on persons engaged in the production or manufacture, storage or sale (whether on their own account or as brokers or commission agents) of salt, and, so far as such imposition is essential for the proper levy and collection of the duties imposed by this Act, or any other excisable goods, the duty of furnishing information, keeping records and making returns, and prescribe the nature of such information and the form of such records and returns, the particulars to be contained therein, and the manner in which they shall be verified; (xi) require that excisable goods shall not be sold or offered or kept for sale in 2[India] except in prescribed containers, bearing a banderol, stamp or label or such nature and affixed in such manner as may be prescribed; (xii) provide for the issue of [registration certificate] and transport permits and the fees, if any, to be charged thereof: Provided that the fees for the licensing of the manufacture refining of salt and saltpetre shall not exceed, in the case of each such license the following amounts, namely:- Rs. Licen....
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....edit of duty paid or deemed to have been paid on the goods used in, or in relation to, the manufacture of excisable goods where such credit is varied subsequently:] (xvii) exempt any goods from the whole or any part of the duty imposed by this Act; [(xviaa) provide incentives for increased production or manufacture of any goods by way of remission of, or any concession with respect to, duty payable under this Act;] (xviii) define an area no point in which shall be more than one hundred yards from the nearest point of any place in which salt is stored or sold by or on behalf of the Central Government, or of any factory in which saltpetre is manufactured or refined, and regulate the possession, storage and sale of salt within such area; (xix) define an area round any other place in which salt is manufactured, and regulate the possession, storage and sale of salt within such area; (xx) authorise the [Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) or [Chief Commissioners of Central Excise or Commissioners of Central Excise] appointed for the purpose of this Act to provide, by written instructions, for supplemental ma....
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....on or storage of such goods without having applied for the [registration] required under section 6, or [(d) contravenes the provisions of any such rule with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the manufacture, producer of licensee shall be liable to a penalty not exceeding the duty leviable on such goods of [five thousand rupees,] whichever is greater;] [(5) Notwithstanding anything contained in subsection (3), the Central Government may make rules to provide for the imposition upon any person who acquires possession of, or is in any way concerned in transporting, removing, deposition, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or the rules made thereunder, a penalty [not exceeding the duty leviable on such goods or [five thousand rupees,] which ever is greater]. RULE 3. CENVAT Credit - (1) A manufacturer or producer of final products or a [provider of output service] shall be allowed to take credit (hereinafter referred to as the CENVAT Credit) of - (i) the duty of excise specified in ....
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....f the Finance Act; and (x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004), (xi) the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law; paid on- (i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25t....
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....rter, as the case may be: Provided further that the CENVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department of Revenue),- (i) No. 32/99-Central Excise, dated the 8th July, 1999 G.S.R. 508(E), dated 8th July, 1999; (ii) No. 33/99-Central Excise, dated the 8th July, 1999 G.S.R. 509(E), dated 8th July, 1999; (iii) No. 39/2001-Central Excise, dated the 31st July, 2001 G.S.R. 565 (E), dated the 31st July, 2001; (iv) No. 56/2002-Central Excise, dated the 14th November, 2002 G.S.R. 764(E), dated the 14th November, 2002; (v) No. 57/2002-Central Excise, dated 14th November, 2002 G.S.R... 765(E), dated the 14th November, 2002; (vi) No. 56/2003-Central Excise, dated the 25th June, 2003 G.S.R. 513 (E), dated the 25th June, 2003; and (vii) No. 71/2003-Central Excise, dated the 9th September, 2003 G.S.R. 717 (E), dated the 9th September, 2003, shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective not....
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.... first year @ 10% For each quarter in the second year @ 8% For each quarter in the third year @ 5% For each quarter in the fourth and fifth year @ 1% (ii) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter; Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value. (b) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.] [{5B) If the value of any, (i) input, or (ii) capital goods before being put to use, [on which CENVAT Credit has been taken in written off fully or partially or where any provision to write off fully or partially has been made in the books of account then] the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules.] [(5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the ....
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....nt duty leviable under section 136 of the Finance Act, 2001 (14 Of 2001); (iii) the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (iv) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above; (v) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); (vi) the education cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and (vii) the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilized only towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods le....
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....wing CENVAT Credit allowable under Rule 3 of the CENVAT Credit Rules first proviso to Sub Rule (4) of Rule 3 restricts utilization of CENVAT Credit for discharging the duty liability incurred by the manufacturer and as per the said provisions CENVAT Credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty relating to that month or quarter, as the case may be. Thus, the effect of the said proviso would be that though a manufacturer is obliged to discharge excise duty liability by 5th or 6th day of the next month, the CENVAT Credit taken by the manufacturer only till the end of the month to which the excise duty related, could be utilized and CENVAT Credit legally availed during the first 5 days or 6 days of the subsequent months is not permitted to be utilized for paying the duty of excise for the goods cleared in the previous month, and therefore, on one hand manufacturer is allowed as per Rule 8(1) of the Central Excise Rules, 2002 to pay the duties on the goods removed from the factory during the month by the 6th day of the following month. On the other hand, though the manufacturer may h....