M/S. Varadhalakshmi Mills Ltd vs Cce, Madurai

(Arising out of Order-in- Appeal No. 337/2003 dated 26.09.2003 passed by the Commissioner of Central Excise (Appeals), Madurai).

M/s. Varadhalakshmi Mills Ltd. Appellant

Versus

CCE, Madurai Respondent

Appearance:

Shri. K.S.Venkatagiri, Advocate, for the Appellant Shri B. Balamurugan, AC (AR), for the Respondent

E/1033/2005

(Arising out of Order-in- Appeal No. 161/2005 CE(SLM) dated 31.08.2005 passed by the Commissioner of Central Excise (Appeals), Salem).

M/s. Sona Rajendra Spinners (P) Ltd. Appellant

Versus

CCE & ST, Salem Respondent

Appearance:

Ms. L. Mythili, Advocate, for the Appellant Shri B. Balamurugan, AC (AR), for the Respondent

CORAM

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

Date of Hearing/Decision : 22/09/2015

Final Order No. 41795- 41796/ 2015

Per P. K. Choudhary

M/s. Varadhalakshmi Mills Ltd. and M/s. Sona Rajendra Spinners (P) Ltd. filed these appeals and the issue involved in both the appeals relates to demand under Rule 8(3A), both are taken up together for disposal.

Appeal : E/1107/2003

2. The brief facts of the case are that the appellants are manufacturers of Cotton yarn falling under CH 52 and man made staple fibre yarn falling under 55 of CETA, 1985, and are required to pay excise duty on fortnightly basis in accordance with Rule 173-G(1) of CER, 1944. A SCN dated 14.12.2001 was issued proposing demand of duty of Rs. 41,29,014/- on the clearances made during the period from 07.02.2001 to 31.03.2001 and an amount of Rs. 9.73,159/- on the clearances made during the period 01.04.2001 to 06.04.2001 and proposed penalty under Rule 173Q read with Rule 25 of CER, 2001. On adjudication, the adjudicating authority confirmed the demands proposed under the SCN and imposed a penalty of Rs. 14,000/- under Rule 173Q read with Rule 25 of CER, 2001. On appeal, the Commissioner (Appeals) dismissed the appeal for lack of merits.

Appeal No. E/1033/2005

3. The brief facts of the case are that the appellants are manufacturers of Cotton yarn falling under CH 52 and man made staple fibre yarn falling under 55 of CETA, 1985 and are required to pay excise duty on fortnightly basis in accordance with Rule 173-G(1) of CER, 1944. A SCN dated 01.08.2002 was issued proposing duty of Rs. 10,64,750/- under Section 11(A) 1 of CEA, 1944 along with applicable interest and imposition of penalty under Rule 25 read with Section 38A of CEA, 1944. On adjudication, the adjudicating authority confirmed the demand of Rs. 10,64,750/- along with interest and imposed equivalent penalty under Rule 25 of CER, 2004read with Section 38a of CEA,44. On appeal, the Commissioner (Appeals) upheld the demand and reduced the equivalent penalty to Rs.1,00,000/- and rejected the appeal.

4. Heard both sides. Both the Ld. Counsel, Shri K.S. Venkatagiri, Advocate and Ms. Mythili, Advocate, appeared on behalf of the appellants summarised the facts and submitted that the demand under Rule 8(3A) is no more valid as Hon'ble High Court has struck down the Rule 8(3A) as unconstitutional. It is submitted that the Hon'ble Gujarat High Court in the case of Indsur Global India Vs UOI 2014-TIOL-2115-HC-AHM-CX and in the case of Precision Fasteners Ltd. Vs CCE - 2014-TIOL-2211-HC-AHM-CX held that condition contained in Rule 8 (3A) of Central Excise Rules, 2002 for payment of duty without utilizing cenvat credit is unconstitutional. It is submitted that Hon'ble High Court of Madras in a batch of writ petitions in the recent order in the case of Malladi Drugs & Pharmaceuticals Ltd. - 2015-TIOL-1262-HC-MAD-CX concurred with the judgements of Hon'ble Gujarat High Court cited supra and allowed the writ petitions. He also submits that the Hon'ble High Court of Madras in the case of A R Metallurgicals P. Ltd. Vs CCE Chennai - 2011-TIOL-201-CESTAT-MAD. The counsel also submitted that subsequently Hon'ble Madras High Court in the case of A.R. Metallurgicals Pvt. Ltd. Vs CESTAT & Others - 2015-TIOL-1261-HC-MAD-CX set aside the Tribunal's Final Order No.1105/2010 dt.21.10.2010 reported in 2011-TIOL-201-CESTAT-MAD and allowed the writ petitions and held in favour of assessees by following its earlier orders in Malladi Drugs (supra) & Pharmaceuticals and Gujarat High Court judgements cited supra. He prayed that since the Hon'ble Gujarat High Court and the Hon'ble Madras High Court have struck down the Rule 8(3A) of CER 2002, the demand, interest and penalty confirmed in the impugned orders be set aside and the appellant-assessee's appeals may be allowed.

5. Ld. A.R Shri B.Balamurugan, AC, for the Revenue reiterated the findings of the order and also submitted that in the present appeals adjudicating authority has not only invoked Rule 8(3A) but also other Rules 8(1), 8(3) and Rule 6 have been invoked and also penalty provisions have been invoked. He also submitted that wherever the appellants have paid the duty amount in P.L.A subsequently cenvat credit has been allowed as re-credit.

6. After hearing both sides, we find that the issue in all these appeals relates to whether appellants have not paid central excise duty on consignment basis during default period and also utilized cenvat credit for payment of duty against the provisions of Rule 8 (3A) of CER. Adjudicating authority invoked the provisions of Rule 8 (3A) of CER 2002 and confirmed the demands and also appropriated the amount already paid in P.L.A. towards payment of duty. The Hon'ble High Court of Madras in the recent judgement in the case of Malladi Drugs & Pharmaceuitcals Ltd. Vs UOI (supra) and A.R. Metallurgicals Pvt. Ltd. (supra) decided batch of writ petitions and struck down Rule 8(3A) as ultra vires and allowed the writ petitions of assessees. The Hon'ble High Court of Madras in their order concurred the Gujarat High Court judgement in the cases of Indusur Global Ltd. and Precision Fasteners Ltd (supra). The relevant paragraphs of the High Court, Madras in the case of Malladi Drugs & Pharmaceuticals Ltd. are 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 ofIndsur 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.

7. 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.''

8. 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."

In the above case, the assessees filed writ petitions before Hon'ble High Court challenging the provisions of Rule 8 (3A) of CER. Subsequently, the Hon'ble Madras High Court in the case of A.R. Metallurgicals Pvt. Ltd. (supra) has set aside this Tribunal's Final Order No.1105/2010 dt. 21.10.2010 [2011-TIOL-201-CESTAT-MAD]. The relevant para of the Hon'ble Madras High Court's order is reproduced as under :-

"4. Since the issue raised in this civil miscellaneous appeal has already been decided by the Gujarat High Court in the judgments in Indsur Global Ltd., v. Union of India, 2014 (310) E.L.T.833 (Guj.) = 2014-TIOL-2115-HC-AHM-CX and in Precision Fasteners Ltd., v. Commissioner of Central Excise, 2014-TIOL-2211-HC-AHM-CX, declaring that the condition contained in sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 for payment of duty without utilizing the CENVAT credit till an assessee pays the outstanding amount including interest is unconstitutional and that the subsequent proceedings initiated by the Department for demanding tax were set at naught, which were followed by us in a batch of writ petitions in W.P.Nos.2506 of 2011 etc., dated 27.3.2015 (M/s Malladi Drugs & Pharmaceuticals Ltd., Ranipet etc., etc., v. Union of India rep. by its Secretary, Ministry of Finance etc.) deciding the issue in favour of the assessees therein for the reasons stated therein, following the same, this civil miscellaneous appeal is allowed and the substantial questions of law are answered in favour of the assessee and against the Department. Consequently, M.P.No.1 of 2011 is closed. No costs."

8. Both Hon'ble Gujarat High Court and Madras High Court have held that condition contained in Rule 8 (3A) of Central Excise Rules 2002 for payment of duty "without utilisation of cenvat credit" is contrary to the scheme of availment of cenvat credit under CCR and the said Rule 8(3A) is arbitrary and violative of Article 14 of the Constitution. Accordingly, the Hon'ble High Court has struck down the Rule 8(3A) as unconstitutional. The jurisdictional Hon'ble Madras High Court's ruling is binding on the jurisdictional adjudicating authority and also binding on this Tribunal.

9. We find that this Bench, in a batch of appeals in the case of Cheran Cements and others Vs. CCE, Trichy reported in 2015-TIOL-2119-CESTAT(MAD.) and by following the judgments of the Honble High Court of Gujarat in the case of Indsur Gobal India Vs. UOI  2014-TIOL-2115-HC-AHM-CX, in the case of Precision Fasteners Ltd. Vs.CCE  2014-TIOL-2211-HC-AHM-CX, in the case of Malladi Drugs & Pharmaceuticals Ltd.  2015-TIOL-1262-HC-MAD-CX and in the case of A.R. Metallurgicals Pvt. Ltd. Vs. CCE, Chennai  2011-TIOL-201-CESTAT-MAD and subsequently this Benchs decision in the case of CCE, Chennai-II Vs. Sai Mirra Innopharm Pvt. Ltd. -2015-TIOL-2265-CESTAT-MAD and Final Order No. 41628/2015 dated 30/11/2015 in the case of Sam Turbo Industries Pvt. Ltd. Vs. CCE, Coimbatore and in the appellants case M/S Sri Sivasakthi Auto Ancillaries in the batch appeals, for the earlier period, allowed the appeal by following the ratio laid down by the Honble High Courts and Tribunals above.

10. By respectfully following the same, we hold that demand of duty under Rule 8(3A) is unsustainable as the said Rule has been struck down by the Hon'ble High Court and the demand of duty and penalty imposed in the impugned orders is liable to be set aside. The assessee's appeals are allowed with consequential relief, if any.

(Operative part of the order Pronounced in the open court)

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

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