TMI Blog2015 (10) TMI 2455X X X X Extracts X X X X X X X X Extracts X X X X ..... cision Fasteners Limited's cases (2014 (12) TMI 585 - GUJARAT HIGH COURT) and Malladi Drugs and Pharmaceuticals Limited's case (2015 (5) TMI 603 - MADRAS HIGH COURT) followed - matter remanded back - Decided in favour of assessee. - C.W.P. No. 10564 of 2014 (O&M) with CWP Nos. 14114, 14741, 23128, 25335 & 25429 of 2014 & 4804, 4841, 4865, 4873, 2001, 15514, 4779 and 1298 of 2015 - - - Dated:- 20-8-2015 - Ajay Kumar Mittal And Ramendra Jain, JJ. For the Appellant : Mr. Jagmohan Bansal, Adv. Mr. Surjeet Bhadu, Adv. and Mr. Rishi Chanan, Adv For the Respondent : Mr. Kamal Sehgal, Adv. Mr. Brijeshwar Singh Kanwar, Adv. and Ms. Ranjana Shahi, Adv. (Sr. Panel Counsel) JUDGMENT Ajay Kumar Mittal, J. 1. This order shall dispose of a bunch of 14 petitions viz. CWP Nos.10564, 14114, 14741, 23128, 25335, 25429 of 2014, 4804, 4841, 4865, 4873, 2001, 15514, 4779 and 1298 of 2015 as the issue involved in all these petitions is identical. However, the facts are being extracted from CWP No.10564 of 2014. 2. CWP No.10564 of 2014 has been filed by the petitioner for quashing Sub rule 3A of Rule 8 of Central Excise Rules, 2002 (in short, the 2002 Rules ) being beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without utilizing CENVAT Credit till the date he pays outstanding amount including interest thereon at the rate specified by the Central Government. The petitioner is availing CENVAT Credit on zinc dross, zinc scrap and zinc blowing. The finished product is zinc metal. During the process of conversion of zinc scrap/dross into zinc metal, a waste arises which is called as zinc ash. The petitioner is clearing zinc ash as well as zinc metal on payment of duty. The value addition is very low, so duty is mainly paid from CENVAT Credit account and very small amount is paid in cash. During the month of October 2012, the petitioner cleared goods involving duty amounting to ₹ 19,26,044/-. The petitioner paid a sum of ₹ 18,18,534/- through CENVAT account and ₹ 17000/- through personal ledger account i.e. cash. The accountant of the petitioner while calculating duty liability picked figure of one entry as ₹ 10057/- whereas actual figure was ₹ 100567/-. It resulted into short payment of duty amounting to ₹ 90,510/-. The petitioner was having CENVAT Credit of ₹ 650410/- apart from credit utilized for payment of duty so there was no question of delaying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002 Rules is arbitrary and is very unreasonable and is liable to be struck down. Learned counsel further submitted that the legislature realizing the situation had withdrawn the aforesaid provision and amended Rule 8(3A) of the 2002 Rules w.e.f 11.7.2014. Further reliance was placed on judgments in Gurudev Overseas Limited vs. Central Board of Excise and Cus. New Delhi, 2008 (229) ELT 195 (P H), Arvind Boards and Paper Products Limited vs. Commissioner of Income Tax, Gujarat IV, 137 ITR 635 (Guj.), Commissioner of Income Tax vs. Sae Head Office Monthly Paid Employees Welfare Trust, 271 ITR 159 (Del.), Om Kumar vs. Union of India, (2001) 2 SCC 386 and Bansal Alloys Metals Pvt. Limited vs. Union of India, 2010(260) ELT 343 (P H). 6. On the contrary, learned counsel for the revenue besides supporting the impugned provision submitted that hardship cannot be a ground to hold a provision to be ultravires. The purpose of the provision was to curb evasion of excise duty. Support was drawn from judgments in Government of Andhra Pradesh and others vs. Smt.P.Laxmi Devi, AIR 2008 SC 1640, Spences Hotel Pvt. Limited and another vs. State of West Bengal and others, (1991) 93 CTR 60 (SC), A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... away with. Instead, such an assessee would invite penalty at the rate of one per cent for each month or part thereof calculated from the due date. 10. The matter is no longer res integra. In Indsur Global Limited's case, while delving into identical issue, the Gujarat High Court held that to insist the assessee to pay unpaid amount without utilizing CENVAT Credit, which is duty on various inputs already paid by him, is unreasonable and out of proportion to aim sought to be achieved. It was noted as under:- 29. This brings us to the last limb of the petitioner's contention, namely, that the condition attached by sub-rule (3A) of rule 8 is unreasonable and therefore violative of Article 14 of the Constitution and amounts to serious restriction on the petitioner's right to carry on trade or business of his choice guaranteed under Article 19(1)(g) of the Constitution. This contention requires a closer scrutiny. As noted earlier, the restrictions of sub-rule (3A) come in two folds. Firstly, a defaulter assessee has to clear the consignments on spot payment of excise duty and secondly, that such excise duty has to be paid in cash without availing CENVAT credit. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not genuine. This rule 12CC as well as the notification issued by the Government would apply to special class of assessees who through their conscious act tried to evade duty. 30. It can be seen that the reasons for non-payment of excise duty can be manifold and not necessarily in all cases have to be willful default by an assessee despite availability of funds. Excise duty may remain unpaid due to economic reasons, due to slowness in the business or due to financial crunch temporarily felt by the manufacturer who though might have cleared the finished goods and also sold the goods in the market may not have received the payment as promised. All such cases of defaults willful or otherwise are clubbed together for the same treatment and a stringent condition of payment of excise duty without availing CENVAT credit is imposed. It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. We may also recall that in the case of Dai Ichi Karkaria Ltd (supra) it was reiterated that a manufacture obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable produce immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. 32. As held by the Supreme Court in the case of Chantamanrao (supra), the phrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us affront to his right to carry on his trade or business guaranteed under Article 19(1)(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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13. With reference to the judgments on which heavy reliance had been placed by learned counsel for the respondents, we proceed to examine them individually. In Smt.P.Laxmi Devi's case (supra), the Apex Court was considering the issue of amendment in Section 47A of the Stamp Act, 1899 requiring a party to deposit 50% deficit stamp duty as a condition precedent for a reference to the Collector. It was held that it was an economic measure, whose aim was to plug the loopholes and secure speedy realization of stamp duty, and, therefore, could not be said to be unconstitutional. Again, the Supreme Court in Spences Hotel Pvt. Limited's case (supra), laid down that provisions req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the period till the actual payment was made, stands disallowed in the event of a minor default also is arbitrary and unreasonable. It may further be noticed that the respondents had themselves realized the unreasonableness of the provisions of Rule 8 (3A) of 2002 Rules and had withdrawn the words 'without utilizing the benefit of CENVAT Credit' and had amended the same w.e.f 11.7.2014 by incorporation that now a penalty shall be imposed at the rate of 1% of the defaulted amount for each month or part thereof calculated from the due date. 15. As a result, CWP Nos.10564, 14114, 14741, 23128 of 2014, 4804, 4841, 4865, 4873, 2001 and 15514 of 2015 are allowed. The competent authority shall pass orders keeping in view our above observations in pursuance to the show cause notices issued to the petitioners. While also allowing CWP Nos.25429 of 2014, 4779 and 1298 of 2015, where impugned orders of demand of duty have been issued, it is directed that the matter shall be adjudicated afresh by the competent authority after excluding the words without utilizing the benefit of CENVAT Credit from Rule 8(3A) of the 2002 Rules. In CWP No.25335 of 2014, the impugned Panchnama wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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