Shivam Pressings vs Commissioner Of Central Excise, Pune-I

(Arising out of Order-in-Appeal No. PI/MMD/255/2012 dated 31.12.2012 passed by Commissioner of Central Excise (Appeals), Pune-I)

For approval and signature:

Honble Mr. P.K. Jain, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :

CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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Shivam Pressings Appellant Vs. Commissioner of Central Excise, Pune-I Respondent

Appearance: Shri Anand S. Kulkarni, Advocate, for appellant Shri N. Prabhu Desai, Superintendent (AR), for respondent

CORAM: Honble Mr. P.K. Jain, Member (Technical)

Date of Hearing: 30.1.2015 Date of Decision: 10.2.2015

ORDER NO

Brief facts of the case are that the appellant defaulted in monthly payment of duty in the month of October 2010. The said default was not made good within 30 days of the due dates i.e. from 5th November. As per Rule 8(3A) of the Central Excise Rules, 2002, the appellant was required to 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 consequences and penalties as provided in these Rules shall follow. However, the appellant continued to clear the goods without following the provisions of Rule 8(3A) from 6.12.2010 to 14.12.2010. Similarly, the appellant defaulted in monthly payment for the clearances made during November and December 2010 and even in respect of clearances made in November 2010 they violated the provisions of Rule 8(3A) from 5.1.2011 to 7.1.2011. In respect of default in payment during December 2010, they violated the above mentioned conditions of Rule 8(3A) from 5.2.2011 to 23.2.2011. The total duty involved in the above mentioned clearances against the provisions of Rule 8(3A) amounted to Rs.7,16,391/-. Accordingly the appellant was issued a show cause notice asking them to pay the said amount along with interest and penalty under Rule 25 read with Section 11AC. The case was adjudicated and the original authority confirmed the demand as also interest and penalty. The appellant filed appeal before the first appellate authority who, after considering the submission of the appellant, confirmed the demand and interest. However, the penalty was reduced to Rs.3,00,000/- under Rule 25 of the Central Excise Rules, 2002. Aggrieved by the said decision, the appellant is before this Tribunal.

2. The main contention of the appellant is that the Honble High Court of Gujarat in the case of Indsur Global Ltd. vs. UOI reported in 2014-TIOL-2115-HC-AHM-CX and precision Fasteners Ltd. vs. CCE reported in 2014-TIOL-2211-HC-AHM-CX, has held that the provisions of Rule 8(3A) are wholly arbitrary and unreasonable and to withdraw the facility of paying excise duty through cenvat credit is an unreasonable restriction which would fall foul of not only Article 14 of the Constitution but also would seriously hamper the petitioners right to carry on trade or business under Article 19(1)(g) of the Constitution. The learned counsel submitted that in view of the said decisions of the Honble High Court of Gujarat, the issue is no more res integra and the impugned order is required to be set aside.

2.1 The learned counsel also submitted that without prejudice to the said argument, no penalty can be imposed under Rule 25 read with Section 11AC in the facts of the instant case as held by the Honble Gujarat High Court in the case of CCE vs. Saurashtra Cement Ltd. reported in 2010 (260) ELT 71 (Guj.) which has been affirmed by the Honble Supreme Court in 2013 (292) ELT A98 (SC).

3. The learned AR, on the other hand, argued that a perusal of the judgment of the Honble High Court of Gujarat would indicate that the Honble High Court has only stated that restriction on utilization of cenvat credit is incorrect and violative of Article 19(1)(g) of the Constitution. The learned AR further argued that the whole reading of the judgment would indicate that the Honble High Court has upheld imposing certain restriction on the persons who default in payment of duty and in fact in the order, the Honble High Court in para 35 has stated that insisting on an assessee in default to clear all consignments on payment of duty would be perfectly a legitimate measure.

3.1 The learned AR further stated that it is not disputed by the learned counsel for the appellant that they have not cleared the goods by paying duty consignment-wise which is the essential requirement of Rule 8(3A). It is not the case of the appellant that they cleared the goods by paying the duty consignment-wise from cenvat credit account. In fact they have cleared the consignment without payment of duty either from cenvat account or from PLA. Thus they have violated the conditions of Rule 8(3A) and the goods cleared are liable to be confiscated as per Rule 25(1)(a).

3.2 The learned AR further submitted that penalty has been imposed under Rule 25 in the impugned order and is perfectly in line with Rule 25 and the penalty is imposable. The facts of the case in Saurashtra Cement Ltd. argued by the learned counsel were different. There the issue was not relating to Rule 8(3A) but Rule 8(3) alone as it existed at that time. Further, in the said case, the Honble High Court has come to the conclusion that penalty cannot be imposed under Rule 25 as none of the sub-clause (a), (b), (c) or (d) were invokable in the facts and circumstances of the case. In view of the said position, the case law is not applicable and penalty has been correctly imposed. He further submitted that the first appellate authority has already reduced the penalty substantially and hence the impugned order may be upheld.

4. I have gone through the submissions of both the sides and also the judgments quoted by the learned counsel for the appellant. To appreciate the issue, the provisions of Rule 8(3A) are reproduced below:-

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. The said Rule thus provides that if an assessee is not able to pay the duty even after 30 days from the due date, 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.

4.1 I have also gone through the judgment of the Honble High Court of Gujarat in the case of Indsur Global Ltd. (supra). I find that the Honble High Court in paras 34, 35 and 36 has observed as under:-

34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid b/ him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(l)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail.

35. The situation can be looked at slightly different angle. With or without the provisions of sub-rule (3A), liability to pay interest for the default period as per sub-rule (3) of rule 8 continues. Sub-rule (3A) is basically a mechanism for stringent recovery and does not create a new liability unless this mechanism itself is breached. In such 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 b2 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.

A reading of the above paras would clearly indicate that the Honble High Court of Gujarat has only declared without utilizing the cenvat credit in Rule 8(3A) as unconstitutional. In fact in para 35 as also the earlier paras, all other provisions of Rule 8(3A) have been considered as correct and perfectly legitimate. Keeping in view the judgment of the Honble High Court of Gujarat, Rule 8(3A) would imply that if the assessee defaults in payment of duty beyond 30 days from the due date, the assessee shall pay excise duty for each consignment at the time of removal 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. Thus, as per Rule 8(3A) and the judgment of the Honble Gujarat High Court, the appellant was expected to clear the goods for each consignment at the time of removal till the outstanding amount including interest is paid. It is not in dispute that for the demands made, the appellant has not paid the duty consignment-wise and has not paid the duty consignment-wise either through cenvat credit account or through PLA. Obviously they have violated Rule 8(3A) and the said rule provides that it shall be deemed that such goods have been cleared without payment of duty and consequences and penalties as provided in these rules shall follow.

4.2 Now coming to the penalty aspect, the penalty has been imposed under Rule 25. Rule 25 is reproduced below:-

Confiscation and penalty.?RULE 25.  (1) Subject to the provisions of section 11AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, -

(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or

(b) does not account for any excisable goods produced or manufactured or stored by him; or

(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or

(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [rupees two thousand], whichever is greater. It would be seen that the present situation is covered by clause (a) of Rule 25(1) as the appellant has removed the excisable goods without payment of duty consignment-wise. It would thus be seen that the appellant has contravened Rule 25(1)(a) and, therefore, the goods cleared during the period are liable to confiscation and the appellant is also liable to penalty not exceeding the duty on the excisable goods.

4.3 I have also gone through the judgment of the Honble High Court of Gujarat in the case of Saurashtra Cement Ltd. reported in 2010 (260) ELT 71 (Guj.). In the said case, the Honble High Court has come to the conclusion that the appellant has not violated any of the sub-clauses (a), (b), (c) or (d) of Rule 25(1) and, therefore, no penalty is imposable under Rule 25. It is to be mentioned that the said decision was relating to Rule 8(3) alone. Rule 8(3A) was introduced with effect from 1.6.2006 and the earlier Rule did not have any provision for clearing the goods consignment-wise and in those situations the Honble High Court has come to the conclusion that Rule 25 is not violated and, therefore, penalty cannot be imposed under Rule 25 and in those circumstances, even Section 11AC of the Central Excise Act is not applicable. The position has changed after the introduction of Rule 8(3A) and as in the present case, the goods were cleared without payment of duty consignment-wise and hence the ratio of the said judgment will not be applicable. Further, it is a well settled law by now that in case of taxing statute, various penal provisions are in the nature of civil obligations and do not require any mens rea or wilful intention until and unless the relevant provision provides for the same. Under the circumstances, I am of the considered view that the appellant has violated Rule 8(3A) and hence the goods covered by the show cause notice are liable to confiscation and the appellant is liable to penalty under Rule 25 of the Central Excise Rules, 2002. However, keeping in view the fact that the duty involved is Rs.7,16,391/- and also keeping in view the number of days when the appellant was supposed to clear the goods consignment-wise, it is felt that penalty of Rs.3,00,000/- is on the higher side and the same is reduced to Rs.50,000/-.

4.4 As far as the demand of duty is concerned, since the amount is paid later on through credit/cash the same will not survive in view of the decision of the Honble High Court of Gujarat in the case of Indsur Global Ltd. (supra).

5. The appeal is disposed of in above terms.

(Pronounced in Court on 10.2.2015)

(P.K. Jain) Member (Technical)

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