Commissioner Of Central Excise vs Sai Mirra Innopharm Pvt. Ltd

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI

Appeal No. E/42/2006 [Arising out of Order-in-Appeal No.59/2005 (M-II) dt. 21.11.2005 passed by the Commissioner of Central Excise (Appeals), Chennai]

Commissioner of Central Excise, Chennai-II Appellant

Versus

Sai Mirra Innopharm Pvt. Ltd. Respondent

Appeal No. E/640/2006 [Arising out of Order-in-Original No.12/2006 (M-II) dt. 21.4.2006 passed by the Commissioner of Central Excise, Chennai-II]

Sai Mirra Innopharm Pvt. Ltd. Appellant

Versus

Commissioner of Central Excise, Chennai-II Respondent

Appearance:

Shri J. Shankar Raman, Advocate For the Assessee

Ms.Indira Sisupal, AC (AR) For the Revenue

CORAM :

Honble Shri R. Periasami, Technical Member Honble Shri P.K. Choudhary, Judicial Member

Date of Hearing/Decision : 16.9.2015

FINAL ORDER No.41236-41237/2015

Per R. Periasami

The Revenue appeal is filed against Commissioner (Appeals) order dt. 21.11.2005 and the assessee's appeal is filed against the order of Commissioner of Central Excise, Chennai-II.

2. After hearing both sides, we find that the issue relates to applicability of Rule 8 (3A) of Central Excise Rules on the default payment. The adjudicating authority ordered for payment of excise duty on consignment basis for two months from 8.10.2005 onwards in P.L.A without utilization of cenvat credit. On appeal, it was reduced to 15 days against which Revenue filed appeal. On the assessee's appeal, penalty imposed for belated payment under Rule 8(3A). We find that the Hon'ble High Court in the case of Malladi Drugs & Pharmaceuticals Ltd.  2015-TIOL-1262-HC-MAD-CX struck down the Rule 8(3A) as ultra vires. The relevant portion of the Hon'ble High Court's order (supra) is reproduced as under :-

"This batch of writ petitions challenges the constitutional validity of Rule 8(3A) of the Central Excise Rules, 2002, which was introduced with effect from 1.6.2006, and the said Rule reads as follows:-

''8(3A). 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 sub-rule (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.'' ... ... ...

2. The primary ground of challenge made in this batch of writ petitions is that Rule 8(3A) of the Central Excise Rules,2002 is unconstitutional, totally arbitrary, irrational, oppressive and contrary to the power delegated to the rule making authority. Several facets of the challenge to the said rule was considered by a Division Bench of the Gujarat High Court in the case of Indsur Global Ltd., v. Union of India, 2014 (310) E.L.T.833 (Guj.) = 2014-TIOL-2115-HC-AHM-CX, wherein the Court declared that 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 unconstitutional. To be more precise, the Court held as follows:-

''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.'' ... ... ....

5. It is not the case of the Department in this batch of writ petitions that the petitioners-assessees have illegally or irregularly taken the CENVAT credit. It is to be mentioned herein that sub-rule (1) of Rule 8 provides for the manner of payment of duty on the goods removed from the factory or the warehouse as provided thereunder. Sub-rule (2) of Rule 8 extends the benefit of duty to the third party purchaser, who buys the excisable goods removed by the assessee and such goods are deemed to have suffered duty of excise. Under sub-rule (3) of Rule 8, interest is liable to be paid on the outstanding amount, if the assessee fails to pay the duty by the due date. In contradiction to this procedure, sub-rule (3A) of Rule 8 provides that in default of the payment of duty beyond thirty days from the due date as prescribed under sub-rule (1), notwithstanding anything contained in sub-rule (1) and sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004, the assessee is bound to pay excise duty at the time of removal without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon. The right to pay duty by utilising the CENVAT credit that had accrued cannot be defeated, unless it is a case of illegal or irregular credit (See the decision of the Supreme Court in Dai Ichi Karkaria Ltd., referred supra). To that extent, we find this sub-rule (3A) arbitrary and therefore violative of Article 14. The right that has accrued to an assessee by way of CENVAT credit, that is duty paid on the inputs, cannot be taken away under a rule, which only provides for the manner and method of payment of duty and for levying of interest, if there is a default. The object of the term "without utilizing the CENVAT credit'' would run counter to the scheme of availment of the CENVAT credit on the duty paid inputs. It is a legitimate right that has accrued to an assessee and that cannot be denied arbitrarily under the provision under challenge. We, therefore, have no hesitation to concur with the reasoning of the Gujarat High Court that Rule 8(3A) is ultra vires of Article 14 on the ground of arbitrariness.

6. Now coming to the challenge to 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 difference between the two sets of facts. In the present case, the petitioner had raised the challenge to the statutory provisions even before the adjudicating authority had taken a final decision. He had, along with rule, also challenged the show cause notice. In the case of Indsur Global Ltd. (supra) the petitioner had unsuccessfully challenged the order of the adjudicating authority. The appeal was dismissed by the Commissioner on the ground of delay beyond his power to condone. The Tribunal had dismissed further appeal on the ground of gross delay of three years in preferring the appeal before the Tribunal as also on the ground that in any case the Commissioner was right in not entertaining the appeal of the assessee which was presented along with the application for condonation of delay after the maximum period which the Commissioner could have condoned. It was in this background the Court held that the issues which are closed cannot be reopened. It was noted that there were other proceedings between the same assessee and department pending at various stages on same issue. It was, therefore, provided that the particular order in challenge would not be disturbed but that the benefit of declaration of invalidity of the rule would be available to the petitioner in other pending proceedings.

7. In view of such clear distinction in facts, the modus adopted in the said case in case of Indsur Global Ltd., (supra) cannot be applied in the present case. The impugned tax demands and show cause notice are set aside. Resultantly, all subsequent actions, if any, taken by the department would be set at naught. Petition is allowed. Rule is made absolute accordingly.''

7. In the light of the aforesaid judgment of the Gujarat High Court, to which view we are agreeable, all the proceedings initiated by the Department in respect of the respective assessees, invoking the said rule by demanding duty along with interest by denying the benefit of CENVAT credit have to be necessarily set aside. Accordingly, the impugned proceedings are set aside. In the result, all the writ petitions are allowed. Consequently, M.P.Nos.1 of 2009, 1 of 2010, 1 of 2011, 1 of 2012 & 1 of 2013 are closed. However, there is no order as to costs."

This Tribunal in a batch of appeals in the case of Cheran Cements Ltd. & Others Vs CCE Trichy vide Final Order No.40847-40873/2015 dt. 7.7.2015 following the Hon'ble High Court's order (supra) allowed the assessee's appeals and rejected the revenue's appeals. In view of High Court's order (supra) and this Tribunal orders, the order of the adjudicating authority is set aside and the assessee's appeal is allowed and the Revenue appeal is rejected. Appeals are disposed in the above terms.

(Dictated and pronounced in open court)

(P.K. CHOUDHARY) (R. PERIASAMI) JUDICIAL MEMBER TECHNICAL MEMBER

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