F.No. V2 (48)/EA2/11/Ahd-III/2012

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F.No. V2 (34)47/Ahd-III/2012

F.No. V2 (48)/EA2/11/Ahd-III/2012

M/s. Gujarat Chemicals situated at Plot No.248 to 250, 279 to 281 GIDC Ranasan, Vijapur, Dist. Mehsana (herein after referred to as “the appellant” for the sake of brevity) filed this appeal along with stay against OIO No. AHM-CEX-003-ADC-057-11 dated 17.11.2011 (hereinafter referred to as “the impugned order” for the sake of brevity)passed by the Additional Commissioner Central Excise & Service tax Ahmedabad-III (hereinafter referred to as “the adjudicating authority” for the sake of brevity). The Department (hereinafter referred to as “Revenue”) has also filed appeal against the said impugned order.

2.1. The appellant were engaged in the manufacture of excisable goods viz. Organic Surface Active Agents falling under Chapter No.34 of the First Schedule to the CETA, 1985;were holding Central Excise Registration. The appellant were availing Cenvat credit facility under Cenvat Credit Rules, 2004. Scrutiny of the ER.3 return (s) filed by the appellant for the period March’2008 to June’2008 under the provisions of Rule 12 of the Central Excise Rules, 2002 revealed that they had failed to discharge the duty liability within the stipulated period as provided under Rule 8(1) of the Central Excise Rules, 2002. The appellant have filed a revised return on 15.09.2009 stating that there was some discrepancy in quantitative data shown in their ER.3 return due to irregularity on the part of their accountant. Further, the appellant have not considered clearance value of Rs.14 lacs made against Invoice No.70 dated 23.06.2008 in their ER.3 return for the quarter ending on 30.06.2008, for the purpose of payment of Central Excise duty liability.

2.2.A statement dated of 26.08.2010 of Shri Ankit Shah, Partner and Authorized Signatory of the appellant has been recorded, wherein he has stated that:-

“they were unable to pay the duty within the stipulated time as per Rule 8 of CER’02 and on certain occasions they made payments after thirty days from due date;

they did not pay consignment-wise duty as prescribed under Rule 8(3A) of the CER’02;

the duty against invoice No.70 dated 23.06.2008 valued at Rs.14 lacs was paid along with interest in April’09 due to omission and

Confessed difference in quantitative data given in the ER.3 return

filed by them for the financial year 2008-09 due to irregularity of

their accountant.”

2.3. Scrutiny of the said returns revealed that the appellant have not paid the amount of duty within the prescribed time limit and delayed in payment of duty beyond thirty days from the due date of payment of Central Excise duty. The detail of the default of payment is as under:

Month / Assessable Value / Duty payable / Duty paid by due date / Delayed payment of duty / Due date for payment of duty / Delayed duty paid by date
( `.)
March, 2008 / 57,92,929 / 835,338 / 342,282 / 493,056 / 31.03.2008 / 12.06.2008
April, 2008 / 65,50,546 / 944,589 / 845,695 / 54,520
44,374 / 15.05.2008 / 12.06.2008
19.08.2008
May, 2008 / 64,67,341 / 932,591 / 371,126 / 561,465 / 15.06.2008 / 19.08.2008
June, 2008 / 83,40,400 / 1,202,686 / 562,138 / 436,268
204,280 / 15.07.2008 / 19.08.2008
10.04.2009

2.4. From the above table, it is evident that the delay in payment of duty for the above months was beyond 30 days and the appellant, in all the cases of delay in payment of duty, have discharged the duty liability along with interest. As per Rule 8 (3A) of the Central Excise Rules, 2002, the appellant should have made consignment wise clearances for the period from March, 2008 to June, 2008 without utilizing CENVAT Credit. The appellant had made clearances of excisable goods by utilizing CENVAT Credit during the said period and had not paid the duty consignment wise.

2.5. Therefore, a show cause notice No.V.34/15-83/OFF/OA/10 dated 13.09.2010 was issued to the appellant for Demanding of C. Ex. duty amounting to`.21,21,241/- which was required to be paid through PLA and was paid through Cenvat Account, under Rule 8 of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944 along with interest at the prescribed rate under Section 11AB of the Central Excise Act, 1944 ;Proposing clearances worth `.2,71,51,216/- as clearance without payment of duty under Rule 8(3A) of the Central Excise Rules, 2002 and confiscation of goods under Rule 25 of Central Excise Rules, 2002 read with Section 9 of Central Excise Act, 1944 with a option to imposed redemption fine upon them. Penalty was proposed to be imposed under Section 11AC of the Central Excise Act, 1994 read with Rule 25 of the Central Excise Rules, 2002.

2.6. The adjudicating authority vide the impugned order has confirmed the demand of C.Ex. duty amounting to `. 21,21,241/- under Rule 8(3A) of the Central Excise Rules, 2002 read with Section 11A of Central Excise Act, 1944 and imposed penalty of `. 80,000/- under Rule 25 of Central Excise Rules, 2002 and ordered recovery of interest under Section 11AB of the Central Excise Act, 1944 .The adjudicating authority has not imposed redemption fine in the matter.

3. 1. Being aggrieved with the impugned order, the appellant filed the present appeal on the ground that: they have not cleared any goods without payment of duty but clearance was affected through Cenvat credit and PLA and regularize the short payment within 01 to 04 months along with interest; clearances to be made consignment wise was never pointed out to them, even then whatever short payment noticed was on account of financial crisis but the same was regularized along with interest during 01 to 4 months and no outstanding dues were there during the period of audit; the reversal of clearances affected through Cenvat credit to PLA will be revenue neutral; they had already discharged their duty liability along with interest and hence provisions of Rule 8(3) of the Rules will not attract in their case; relying on the judgment of Hon’ble Gujarat High Court in the case of Banian & Berry Bearings Pvt Ltd. [2002 (52) RLT 755 (Guj)] they contended that demanding the duty again, which they have already paid is contrary to the legal positions; the moot question that arises for consideration is whether Rule 8(3A) of the Rules was attracted in this case and whether they were legally obliged to pay a sum of `. 21,21,241/- as excise duty through PLA through they have admittedly paid this amount as excise duties in accordance with the time limit specified under Rule 8(1) of the Rules through CENVAT are the issues to be decided; they paid the duty regularly from May’09 onwards and there is no default beyond May’09; they correctly paid the interest from Cenvat credit therefore Rule 8(3A) is not invokable; Section 11A of the Act is not applicable in the present case and hence no proceedings there under could have been initiated against them for alleged breach of Rule 8(3A) of the Rules; imposition of monetary penalty, detention of goods, etc. are the actions provided under Rule 8(3A) of the rules and therefore, demanding duty, which was already paid by them in accordance with Rule 8(1) of the Rules is not permissible; the deeming fiction under Rule 8(3A) is only for the purpose of taking action against a defaulting assessee under Rules, but this deeming fiction is not to result in a situation where duties already paid were also to be ignored or brushed aside; sub-rule (3A) makes it clear that the deeming fiction was for taking actions under the Rules for the goods otherwise cleared on payment of duty and consequences as well as penalties as provided under the Rules alone were to follow in such cases, but not the consequences in the nature of demanding duty again under the Act; sub-rule (4) of Rule 8 also makes it clear that only specified provisions of the Act were applicable for recovery of duty of interest, and that too for duty assessed under Rule 6 and interest under sub rule (3) of Rule 8; if they have to pay the duty through PLA, they were entitled for the Cenvat credit and hence it is case of revenue neutrality. Relying to the decisions of Jay Yushin Ltd. – 2000(119) ELT 718, Narmada Chematur Pharmaceuticals- 2005(179) ELT 276(SC) and Noble Drugs Ltd.- 2007(215) ELT 500, the appellant contended that, payment of duty through Cenvat was also payment of duty through PLA because, Cenvat was nothing but duty already paid on the inputs used by the appellant in relation to manufacture of final products.

3.2. With regard to the imposition of penalty under Rule 25, the appellant contended that there was no justification for demand of duty, the proposal for imposition of penalty under Rule 25 of the Rules also deserves to be vacated; proposal for imposing penalty under Section 11AC is also not correct as they have not evaded any duty and there was no intent to evade duty; the proposal to charge interest under Section 11AB of the Central Excise Act is also without any authority of law. The appellant also contended against the imposition of penalty under Rule 25 and 27 of Central Excise Rules, 2002 and relied the judgments in case of Tejpal Paper Mills Ltd. – 2010 (259) ELT 79 and incase of Shri Ashok M Patel – 2011(263) ELT 279. They contended that the SCN was time barred, they relied the judgment in the case of Tamilnadu Housing Board – 1997(74) ELT 9 (SC).

4.1. Revenue filed the appeal, against the less amount of penalty imposed on the assessee under Rule 25 of Central Excise Rules, 2002 and non imposition of redemption fine/penalty. Revenue in the ground of appeal contended that, this is not the case that default has occurred only for one month, but it has been repeated for over four months; provision of rule are crystal clear that if default lasts for more than one month, the assessee has to clear the goods on consignment basis and that too on payment of duty through PLA, otherwise the clearances are deemed to be cleared without payment of duty; thus the clearances effected during the defaulting period, as per the said rule are deemed to have been made without payment of duty and the consequences and penalties as provided in these rules shall follow; the assessee is a habitual offender and they violated the provisions of Rule 8 (3A) of Central Excise Rules, 2002 ; the goods cleared on which duty was not discharged through PLA are to be treated without payment of duty; willful action of not paying duty through PLA, consignment wise on regular basis for a continuous period during the defaulting period clearly proves intent to evade payment of duty which attracts maximum penalty equivalent to duty evaded; further by paying duty through Cenvat credit and not through PLA clearly indicating intent to evade provisions of law; for violation of Rule 8(3A), the penalty imposed under Rule 25 of Central Excise Rules, 2002 required to be equivalent to duty evaded.

4.2. With regard to the non-imposition of redemption fine, revenue contended that, if there occurs default, the assessee is required to pay duty consignment wise and too through PLA; in this case the assessee has paid partial duty and that too through Cenvat credit; as per provision of law payment of duty through PLA consignment wise is substantial requirement, because there is deeming provision of law is that these goods will be liable for confiscation and imposition of fine; since goods was were not available for confiscation, redemption fine was required to be imposed; the act of adjudicating authority to refrain from imposing redemption fine treating the same as mere technical lapse is out of place showing non-appreciation of provisions of law; the goods cleared by the appellant during the period in question were liable for seizure and confiscation; as the goods were not available for confiscation, the adjudicating authority should have redeemed the same by imposing appropriate fine; the reliance given on the Order of Hon’ble Tribunal in the case of Ms/. Samvid Engineers appears to be premature as the Department has proposed to file appeal before Hon’ble High Court. Revenue placed reliance on the decision of Hon’ble high Court of Bombay in the case of Vidushi Wires (P) Ltd. reported at 2003(156) ELT 168 (Bom).

5.Personal hearing in the present appeal was held on 27.08.2012, Shri Narian Gheewala appeared and reiterated the grounds of appeal and pleaded that (i) penalty under Rule 25 can not be imposed because the clearances were not made without payment of duty (ii) Section 11 A can not be made applicable for the demand of duty. Penalty made under Rule 27 can be imposed but the same was not invoked in the said SCN. Besides, he has also submitted additional written submission at the time of hearing in support of his contentions and pleaded to set aside the order. He has relied upon the judgment of Hon’ble CESTAT, New-Delhi in case of Baba Viswakarama Engineering Co. (P) Ltd. Vs Commissioner of C. Ex., Ghaziabad.

6. I have carefully gone through the facts of the case on records, grounds of appeal in the Appeal Memorandum filed by the appellant as well as by Revenue and submissions made by the appellant at the time of personal hearing. Now I take up the appeal for final consideration.

7. The present appeal mainly involves two contentious issues, which are to be decided (i) whether the adjudicating authority has correctly confirmed the demand of C.Ex. duty amounting to `. 21,21,241/- under Rule 8(3A) of the Central Excise Rules, 2002 along with interest (ii) The penalty of `. 80,000/- imposed under Rule 25 of Central Excise Rules, 2002 has been proper and just; non imposition of redemption fine in lieu of confiscation of goods under Rule 25 of Central Excise Rules, 2002. It is admitted facts that the default in payment of Central Excise duty has been occurred repeatedly for over four months and differential amount of duty along with interest being late payment has been paid after expiry of more than one month from the due date of payment of Central Excise duty. The appellanthavenot paidduty through PLA onthe clearances of goods,consignment wise during the period from March, 2008 to June, 2008. The appellant have also utilized CENVAT Credit for the goods cleared during the period from March, 2008 to June, 2008. Therefore, the issue is to be decided in light of provisions of Rule 8(3A) of Central Excise Rules, 2002.

8. As per Rule 8(3A) of Central Excise Rules, 2002, it is evident that if default in payment of Central Excise duty lasts for more than one month, the appellant has to clear the goods on consignment basis and that too on payment of duty through PLA; otherwise the clearances are deemed to be cleared without payment of duty. It is need less to say that in the instant case the provisions of Rule 8(3) of Central Excise Rules, 2002, have been appropriately applied by the adjudication authority in the impugned order. The appellant have deliberately adopted modus operandi to pay duty amount through Cenvat credit instead of cash payment of duty through PLA. As per the provisions of Rule 8(3) of Central Excise Rules, 2002 the goods so cleared by the appellant on which duty had not discharged through PLA required to be treated as without payment of duty.

9. The appellant has cited the decision of the Hon’ble High Court of Gujarat in case of M/s Banian & Berry Bearing Pvt. Ltd. – 2002 (52) RLT 755. The case law is clearly distinguished because the Hon’ble High Court of Gujarat has held that in the case of delay of 2 to 10 days in making fortnightly payment penalty is not sustainable, whereas in the present matter at hand the delay has been occurred repeatedly and the payment of differential amount was paid after expiry of more than one Month. The appellant has contended in their grounds of appeal that this was a case of mere short-payment and sub-rule (3A) of the Rule 8 of the Central Excise Rules, 2002 was not attracted in their case.I fail to see any substance in the contention of the appellant as there is no scope to equate default in payment of duty to short-payment. In the case of the appellant it is clearly a matter of default in payment that has been alleged in the Show Cause Notice and confirmed in the impugned order. In the present matter at hand, owing to default in payment of duty continuing even beyond the period of 30 days from the due date, under sub-rule (3A) of the Rule 8 of the Central Excise Rules, 2002 there is statutory restriction imposed on the utilization of CENVAT credit till such date that the outstanding duty and interest are paid up. I find that Hon’ble Delhi Tribunal in the case of Godrej Hershey Ltd., Vs. Commissioner of Central Excise, Bhopal- 2011 (263) ELT 0663 (Tri. Del.)has followed the ratio of the Hon’ble Tribunal decision in the case of Commissioner of Central Excise, Chandigarh Vs. Ralson Carbon Black Ltd. – 2008 (229) ELT 113 (Tri.Del) upholding the confirmation of demand for payment of duty in cash during the period of default. Similar view has also been adopted by Hon’ble Gujarat High Court in the case of Elson Packaging Industries Pvt. Ltd. Vs Commissioner of Central Excise and Customs – 2010 (257) ELT 509 (Guj.) where their Lordships held as follows:

“8.As is seen the requirement of the above rule is to pay duty for each consignment by debit to the account current referred in clause (b) of Rule 173G(1) which is to the effect that the manufacturer shall maintain an account current with the Commissioner and shall discharge his duty liability by debiting such account current or by utilizing Cenvat Credit (emphasis provided.) As such, the said rule refers to two modes of payment of duty i.e. either by debiting account current or by utilizing credit leading to the conclusion that the reference is to two distinct, independent and identifiable accounts. Now when Rule 173G(1)(e) makes reference to only one such account in contradistinction to the two made in clause (b), it has to be necessarily concluded that out of the two modes referred in clause (b), only one has been intentionally chosen in clause (e). The said clause can be safely termed as more or less as penal clause providing penalty in the shape of withdrawal of facility of payment of duty on fortnightly basis in case of default by the assessee. Being penal in nature, it also withdraws the facility to use of credit during this period of two months of withdrawal.