AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 920
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rs. 1,92,64,263/- + Rs. 31,85,56,189/-) (Rupees Thirty Three Crore Seventy-eight Lakh Twenty Thousand Four Hundred and Fifty-two only) utilized as Cenvat credit in contravention of Rule 3(4) of Cenvat credit Rules, 2004, is ordered to be denied and recovered through account current under Rule 8(3A) of Central Excise Rules, 2002 read with Section 11A of the Excise Act, 1944. 5.3 Interest at appropriate rate on the said amount is demanded from them under Rule 8(3) of Central Excise Rules, 2002 read with Section 11AA of the Excise Act, 1944. 5.4 Interest amounting to Rs. 4,56,009/- paid is ordered to be appropriated towards interest demanded at para 5.3 above from them under Rule 8(3) of Central Excise Rules, 2002 read with Section 11 AA of the Excise Act, 1944. 5.5 Penalty of Rs. 33,78.20,452/-( Rupees Thirty Three Crore Seventy-eight Lakh Twenty Thousand Four Hundred and Fiftytwo only) is imposed upon them under the provisions of Rule 25 of Central Excise Rules, 2000." 2.1 Appellant is engaged in manufacture of excisable goods falling under Chapter No 39152000, 39239090, 72, 82, 84 of Central Excise Tariff Act, 1985. They consented to join the Large Tax Payers Unit, Mu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntral Excise Rules, 2002. 2.5 The show cause notice was adjudicated as per the impugned order referred to in para 1, above. Aggrieved by the impugned order appellants have filed this appeal. 3.1 We have heard Shri Prakash Shah, Advocate for the appellant and Shri Sydney D'Silva, Additional Commissioner, Authorized Representative for the revenue. Both sides have filed written submissions which have been taken on record. 3.2 Arguing for the appellants, learned counsel submits that,- * There was default in the payment of Central Excise Duty determined by them for the month of January 2013. The duty for the month of January 2013, was to be paid by them as by 6th February. In case they should have paid the defaulted duty along with interest latest by 6th March 2013. In case of any further delay the provisions of Rule 8 (3A) get attracted and they were required to pay the duty in manner as prescribed by the said rule. * Admittedly, from 7.3.2013 to 26.03.2013, the Appellant complied with Rule 8(3A) of the Credit Rules and therefore there is no demand for this period. * On 26.03.2013 they paid the defaulted amount by making debit entry in their CENVAT account. The payment of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch is not admissible. * In view of the foregoing, it appears that duty payable in Current Account for January-2013 not paid by the assessee and such period needs to be treated as default period. It therefore appears that the Central Excise duty of Rs 1,92,64,263/- for January 2013 and Rs. 31,85,36,189/- for the period from 26.03.2013 to 31.12.2013 paid through Cenvat Credit Account is in gross contravention of provisions of Rule 8 (3A) of Central Excise Rules, 2002 read with Rule 3(4) of Cenvat Credit Rules, 2004. * He relies relied upon the upon the following decisions in his support: * Sharp Industries Ltd. [(2014 (304) E.L.T. 689 (Tri Mumbai)] * Shivam Pressings [ 2015-TIOL-1188-CESTAT-MUM) * In the case of MALLADI DRUGS & PHARMACEUTICALS LTD. V/s UNION OF INDIA [2015 (323) ELT 489], the Madras * High Court in its impugned order while expressing full agreement with the judgment of Gujarat High Court in Indsur Global Ltd. case (2014 (310) E.L.T. 833 (Guj.)] had held that Rule 8(3A) of the Central Excise Rules, 2002, is ultra vires of Article 14 of the Constitution of India. The said Rule being procedural prescribing the manner and method of payment of duty only, canno....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submissions made in appeal and during the course of arguments. 4.2 Commissioner has recorded following findings for making the order as indicated in para 1, above: "4.2 In order to determine whether the payment of unpaid duty for January 2013 from Cenvat credit account after 06.03.2014 is correct and proper in law it would be essential to preview the constitutionality of Rule 8(3A) of Central Excise Rules, 2002 examined by the Hon'ble Gujarat High Court in the aforesaid case of Indsur Global Ltd. The Court has held that the Rule does not make any distinction between willful defaulter and others and that all cases of default are clubbed together for same treatment and stringent condition of payment of Excise duty without availing Cenvat credit is imposed. That the reasons for non payment of Excise duty can be manifold and not necessarily in all cases have to be willful default by assessee despite availability of funds. That if Cenvat credit facility is withdrawn, ability of manufacturer to continue business under adverse financial climate would further diminish and this would be cyclical viscious pattern where in every month he would fall behind by due date unable to raise ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es are indirect taxes which are collected by the assessee from customers and when they are not paid to the exchequer in the extended period of 30 days subsequent to the following month it clearly point to the motive of defrauding the exchequer. Prior to 2002 it was mandatory to pay excise duties in advance prior to clearance of goods. Even after the relaxation of this procedure and giving ample time to the assessee to collect it from customers and deposit it with Government, if the assessee fails to pay taking shelter of financial hardship it will give rise to a situation where the class of those assessees who discharge their tax liability on the due dates will be discriminated against. This will lead to an anarchical situation and it will become difficult for Government to collect its legitimate tax dues. Keeping this in mind the delegated legislation has rightly enacted Rule 8(3A) of Central Excise Rules, 2002 and the same has to be strictly construed. (ii) The reliance placed on the legitimacy and indefeasibility of Cenvat credit is irrelevant and confusing. The case laws cited are pertaining to different situation altogether. The department is not at all questioning the legi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of law that the provisions of a statute, including every word, have to be given full effect, keeping the legislative intent in mind. Further-more it is also a well settled canon of interpretative jurisprudence that the Court should not give such an interpretation to provisions which would render the provisions ineffective or otiose. 4.7 The above view is also found in the judgement delivered in the case of Mauli Steel Pvt. Ltd. V. C.C.E., Aurangabad [ 2014 (314) E.L.T. 158 (Tri.- Mumbai)] : in the case of W.H.Wintech Pvt. Ltd. V.C.C.E., Jaipur-I [ 2014 (314) E.L.T. 532 (Tri.- Del)] and in the case of C.C.E., Chennai-II v. A. R. Metallurgicals Pvt. Ltd. [ 2014 (306) E.L.T. 418 (Mad)] delivered by Madras High Court. 4.8 It is therefore held that the payment of default amount of Rs.1,92,64,263/- on 25.03.2013 for the clearances effected during January 2013 through Cenvat credit account by the noticee was an exercise in nullity and could not be recognized as payment towards duty in terms of Rule 8(3A) of Central Excise Rules, 2002 4.9 Further since the default continued for the period 26.03.2013 to 31.12.2013, the Central Excise duty of Rs 31,85,56,189/- paid by the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s CENVAT Account is not proper discharge of defaulted duty for the month of January 2013. Since the default continued even after 26.03.2013, the appellants were required to pay duty consignment wise for the entire period of default. Accordingly a show cause notice dated 31.01.2014 was issued to the appellant asking them to show cause as to why:- a. the clearance effected in the month of January 2013 (duty of Rs. 1,92,64,263) and the clearance effected for the period from 26.03.2013 to 31.12.2013 (duty of Rs. 31,85,56,189/-)should not be treated as clearances without payment of duty in accordance with the provisions of Rule 8(3A) OF Central Excise Rules, 2002; b. the amount of Rs.33,78,20,452/-(Rs. 1,92,64,263/- + Rs. 31,85,56,189/-) (Rupees Thirty three crores seventy eight lakhs twenty thousand four hundred fifty two only) utilized as Cenvat Credit in contravention of Rule 3(4) of Cenvat Credit Rules, 2004, should not be denied & recovered through account current from the assessee under Rule 8(3A) of Central Excise Rules, 2002 read with Section 11A of Central Excise Act, 1944; c. interest at appropriate rate on the said amount should not be demanded from them under Rule 8(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod starting with the first day after due date till the date of actual payment of the outstanding amount." Sub-rule (3A), a portion of which is under challenge before us, as it stood at the relevant time, reads as under : "If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and subrule (4) of Rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow." As per this sub-rule, in case of an assessee who has defaulted in payment of duty beyond thirty days from the due date, has to pay excise duty for each consignment at the time of removal without utilizing the Cenvat credit till he pays the outstanding amount including interest. In the event of failure, it would be deemed that such goods have been c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch a mechanism to provide for withdrawal of CENVAT credit facility for paying the duty borders to creating a penalty. Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty. 36. In the result, the condition contained in sub-rule (3A) of Rule 8 for payment of duty without utilizing the Cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the Cenvat credit" of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, shall be rendered invalid." 4.7 This decision of Hon'ble Gujarat High Court has been affirmed by the Hon'ble Bombay High Court in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as been made before us as to why the decision of the other High Courts declaring Rule 8(3A) of the Central Excise Rules, 2002 unconstitutional, should not be accepted by this Court." 4.8 By referring to certain decision learned Authorized Representative emphasized before us that these matters should be remanded back to the original authority for the final decision after the decision of Hon'ble Apex Court in SLP/ Appeal filed by the revenue against the decision of the Hon'ble High Court of Gujarat, or else the matter be kept in abeyance for the same reason. However we are not in agreement with the arguments advanced by the authorized representative as the said argument has been rejected by the Hon'ble Bombay High Court in case of Twenty First Century Wires Rods Ltd [2019 (26) G.S.T.L. 478 (Bom.)] stating as follows: "5. No distinguishing features in these two cases with above cases in law and/or facts has been shown to us, which would justify our taking a different view in these two appeals. 6. However, it must be pointed out that Mr. Ochani, Learned Counsel appearing for the Appellant invited our attention to an order dated 5th February, 2018 passed by this Court in Central ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt the appellants. In terms of the Proforma of ER-1 reproduced above and the provisions of Rule 8, there appears to be no bar created on utilization of the CENVAT Credit for the payment of defaulted duty. However proviso to Rule 3 (4) of the CENVAT Credit Rule, 2004 provided as follows: "(4) The Cenvat credit may be utilized for payment of - (a) any duty of excise on any final product; or (b) an amount equal to Cenvat credit taken on inputs if such inputs are removed as such or after being partially processed; or (c) an amount equal to the Cenvat credit taken on capital goods if such capital goods are removed as such; or (d) an amount under sub-rule (2) of Rule 16 of Central Excise Rules, 2002; or (e) service tax on any output service : Provided that while paying duty of excise or service tax, as the case may be, the 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 or tax relating to that month or the quarter, as the case may be : Provided further that ........" 4.10 Board has considered issue of payments of arrears from the CENVAT Credit account that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Central Excise officer and the payment is mandated after such determination. There is no time limit prescribed under Section 11A i.e., monthly or quarterly unlike the date prescribed under Rule 8 (i.e., 5th of the next month). Therefore, the restriction on the utilization of the cenvat credit accruing subsequent to the last date of the month or quarter in which the arrears arise, is not applicable to the demands confirmed under Section 11A of the Central Excise Act, 1944." In view of the above clarification issued by the Board there seem to be no requirement, that the arrears that have arisen under Rule 8 were required to be paid in cash only, utilization of the CENVAT Credit for payment of the said arrears is permissible, subject to the condition that the balance was available in the account of the appellant. 4.11 Hon'ble Gujarat High Court has in the case of Advance Surfactant [2017 (358) ELT 53 (Guj)] has held this proviso to be unconstitutional stating as follows: "Considering Rule 3 of the Cenvat Credit Rules, 2004, which are framed in exercise of powers under Section 37 of the Central Excise Act, 1944 it provides for Cenvat Credit allowable to the manufacturer or pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efeasible and there is no correlation of the raw-material and the final product. It is not as if credit could be taken on a final product, which is manufactured out of a particular raw material to which the credit was related. The credit may be taken against excise duty on the final product manufactured on the very day that it becomes available. Thus, as such, credit under the Cenvat Scheme is "as good as tax paid". If any decision is needed on the aforesaid decision of the Hon'ble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) and Eicher Motors Ltd. (supra) are required to be referred to. In the aforesaid decision, it is specifically held that utilization of legally availed Cenvat credit is a right vested in the manufacturer the moment duty paid inputs or input services are received by him because there is no one to one correlation between input/inputs services on one hand and the final excisable product on the other hand. Therefore, proviso to Sub Rule (4) of Rule 3 of the Cenvat Credit Rules, which disentitles the manufacturer utlization of Cenvat Credit availed in a particular month for the goods manufactured in the preceding month can be said to be contrary to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jan- 2013 19264263 21979828 (Nov) 499932 (Int) 19264263 (Jan) + 28991453 (Dec) Feb- 2013 Nil Nil 19264263 (Jan) + 28991453 (Dec) Mar- 2013 Nil 28991453 (Dec) 1057989 (Int Dec) 456009 (Int Jan) 19264263 (Jan)* *Default amount of Rs 19264263/- for the month of Jan-2013 has been shown as paid through CENVAT credit account in the month of Mar-2013 which is not admissible." 4.14 Rule 12 A (4) of the CENVAT Credit Rules permitted the transfer of CENVAT Credit from unit of the person operating under the LTU scheme to the other unit of the same person. Appellant unit at Hyderabad was having sufficient credit balance of Rs 8,56,63,033/- in their CENVAT Account at the close of the January 2013. If they the appellant request to operate under the LTU scheme was allowed during any month prior to January 2013 or during the month of January 2013, they would have transferred this balance to their unit in Mumbai and would have utilized the same for payment of the duty. In fact appellant transferred this amount from their Hyderabad unit after being accorded the permission to join LTU on 28.02.2013. They utilized this transferred credit for payment of the defaulted duty ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....demands have been made against them considering that the payment of the defaulted duty for the Month of Jan-2013 on 26.03.2013 from their CENVAT Account was not a valid payment. Once we hold that the payment from their CENVAT account was valid payment the demands for the subsequent period will automatically be not sustained. 4.16 It is interesting to note that the show cause notice raises the demand by invoking "Rule 8(3A) of Central Excise Rules, 2002 read with Section 11A of Central Excise Act, 1944." Adjudicating authority has confirmed the demand under the same provisions. If that is so as per para 5 of the Board Circular of 2012, referred to by us earlier after confirmation of the demand these demands can be paid by utilization of the CENVAT Credit. 4.16 Plain reading of Rule 8 (3A) as it was then would clearly show that it is not amenable to Section 11A of the Central Excise Act, 1944. Rule itself declares that in cases where the rule apply, the clearances are to be made on payment of duty in cash and on consignment basis. In case of default from the same the goods will be treated to be cleared without payment of duty and consequences as per law will follow. By making the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t credit during the period in which default continues, we are of the view that even when the said amount is required to be paid as arrears of revenue the same have to be paid in cash without utilization of the Cenvat credit. Any other interpretation will make the restriction relating to utilization of credit meaningless. It is settled law that what is not allowed directly cannot be allowed/claimed indirectly. Board's Circular dated 28th March, 2012 will not be applicable in view of reasons stated earlier. We, therefore, hold that the appellants are required to pay an amount of Rs. 8,00,09,346 which is equivalent to the Cenvat credit utilized during the period 6-12- 2010 to 4-7-2011 in cash. They will, however, be free to take Cenvat credit of equivalent amount and utilize it for future clearances. Learned Counsel has cited certain judgments of this Tribunal. In view of the above analysis as also the fact that these were delivered before the Hon'ble Madras/Karnataka High Court judgments, we do not consider it necessary to discuss these." This decision was rendered by the tribunal following the decision of Single Judge of Hon'ble Madras High Court in case of Unirols Airtex [2013 (2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the proceedings initiated by the Department by invoking Rule 8(3A) of the Central Excise Rules, 2002 and the consequential orders passed by the original authority or appellate authority, as the case may be, in demanding duty along with interest, the Gujarat High Court in the case of Precision Fasteners Ltd. v. Commissioner of Central Excise, 2014 - TIOL - 2211 - HC-AHM - CX, has held as follows :- ''4. When the statutory basis for issuance of a show cause notice and raising tax demand is knocked down, the very proceedings would have to be struck down. 5. Learned counsel Shri Oza for the revenue, however, submitted that during the pendency of this petition, the adjudicating authority passed the final order which has not been challenged. He drew our attention to the later portion of the said decision in case of Indsur Global Ltd. (supra) in which this Court even while striking down the portion of sub-rule (3A) of Rule 8, did not disturb the orders passed by the Revenue authorities as upheld by the Tribunal, since such dispute had achieved finality. Counsel would urge that in the present case also the same course should be adopted. 6. In our opinion, however, there is vital ....