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2015 (10) TMI 2455 - PUNJAB & HARYANA HIGH COURT

2015 (10) TMI 2455 - PUNJAB & HARYANA HIGH COURT - 2015 (326) E.L.T. 256 (P & H) - Constitutional validity of Rule 8(3A) of the 2002 Rules - Disallowance of the benefit of adjustment of CENVAT credit lying unutilised in its account by issuing show cause notices - Held that:- Rule 8(3A) of the 2002 Rules to the extent it contains the words 'without utilizing the CENVAT Credit' is held to be arbitrary and unreasonable and is struck down. In other words, the unamended Rule 8(3A) of 2002 Rules where .....

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rate of 1% of the defaulted amount for each month or part thereof calculated from the due date. - Decision in the case of Indsur Global Limited & Precision 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 .....

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, 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 delegated powers of the respondents and is arbitrary and confiscatory in nature. Further direction has been sought to the respondents not to adjudicate show cause notice iss .....

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o Central Valued Added Tax (CENVAT). The petitioner is availing CENVAT Credit in terms of CENVAT Credit Rules, 2004 (in short, "the 2004 Rules"). The value addition involved is very low as major part of duty is paid from CENVAT. The petitioner is also importing goods. It gets more input credit than duty payable on finished goods apart from basic customs duty. As per Section 3 of the Central Excise Act, 1944 (in short, "the Act"), duty of excise called as CENVAT is leviable on .....

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th, in any other case. As per Rule 3 of the 2004 Rules, a manufacturer or producer of final product is entitled to credit of duty of excise leviable under the Act apart from other duties of excise specified in the Rule. As per Rule 3(4) of the 2004 Rules, the CENVAT Credit may be utilized for the payment of any duty on any final product. The object of CENVAT Credit is to avoid cascading effect of duties leviable at different stages. Therefore, the Government has extended benefit of credit on dut .....

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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 CENVA .....

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disclosed but a sum of ₹ 90,510/- was paid short. This fact came to the knowledge of the petitioner when an official of the respondents pointed out about the same. The petitioner immediately deposited the said amount alongwith interest. The petitioner vide GAR 7 dated 31.10.2013 deposited a sum of ₹ 90510/- towards duty and ₹ 16292/- towards interest. Inspite of deposit of duty alongwith interest, the respondent relying upon Rule 8(3A) of the 2002 Rules formed an opinion that .....

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1,87,21,250/- during January 2013 to October 2013. According to the petitioner, sub-rule 3A of Rule 8 of 2002 Rules is contrary to the whole scheme of the CENVAT credit. Hence the instant writ petitions. 4. We have heard learned counsel for the parties. 5. Challenge in these petitions is to the vires of Rule 8(3A) of the 2002 Rules. Learned counsel for the petitioners relied upon decisions of the Gujarat High Court in Indsur Global Limited vs. Union of India, 2014 (310) ELT 833 and Precision Fa .....

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₹ 90,510/- for which amount of ₹ 29,27,888/- and ₹ 1,87,21,250/- in pursuance to Rule 8(3A) of the 2002 Rules had been sought to be invoked to disallow the benefit of adjustment of CENVAT credit lying unutilised in its account by issuing show cause notices, Annexures P.4 and P.5. It was urged that Rule 8(3A) of the 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 .....

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ansal 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 .....

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SC 2096 and Indsur Global Limited's case (supra). 7. We do not find any substance in the submissions of learned counsel for the revenue. 8. Un-amended and amended Rule 8(3A) of 2002 Rules reads thus:- Rule 8(3A) (unamended) "(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 excis .....

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of one month from the due date, then the assessee is liable to pay the penalty at the rate of one per cent on such amount of the duty not paid, for each month or part thereof calculated from the due date, for the period during which such failure continues." 9. As per unamended Rule 8(3A) of the 2002 Rules, in case of an assessee who has defaulted in payment of duty beyond thirty days from the due date, has to pay excise duty for each consignment at the time of removal without utilizing the .....

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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 .....

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ments on spot payment of excise duty and secondly, that such excise duty has to be paid in cash without availing CENVAT credit. This rule does not make any distinction between the willful defaulter and the others. Though term 'willful defaulter' has not been defined in the statute, the concept is not an unknown one. Section 11AC of the Central Excise Act provides for penalty in case of non-levy, short levy or non-payment or short payment or erroneous refund of the duty where the same is .....

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non-payment having been occasioned due to fraud, collusion, etc. in which case a longer period of limitation is available as against rest of the cases. Likewise, under rule 12CC of the Central Excise Rules as it stood at the relevant time, power was given to the Government by notification to withdraw facilities from the manufacturers, registered dealers or exporters under certain circumstances having regard to the extent of evasion of duty, nature and type of offences or such other factors as ha .....

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ut not accounted for in the books of account; (c) taking of CENVAT credit without the receipt of goods specified in the document based on which the said credit has been taken; (d) taking of CENVAT credit on invoices or other documents which a person has reasons to believe as not genuine; (e) issue of excise duty invoice without delivery of goods specified in the said invoice; (f) claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to be .....

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arily 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 busi .....

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m for adjustment for payment of excise duty liability upon clearance of the finished product. If such facility is withdrawn, it could be appreciated, his ability to continue the business under such adverse financial climate would further diminish. This would be a cyclical vicious pattern where in every month he would fall behind by the due date unable to raise cash flow for payment of duty for the clearance which he desires to make and is therefore further saddled with the burden of paying such .....

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e of peculiar circumstances the assessee lands himself in. However, when such provision makes no distinction between a willful defaulter and the rest, we must view its reasonableness in the background of an ordinary assessee who would be hit and targeted by such a provision. As held by the Supreme Court in the case of Eicher Motors Ltd (supra) an assessee would be entitled to take credit of input already used by the manufacturer in the final product. In the said case, the Supreme Court was deali .....

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to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once 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 ta .....

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e 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 "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of t .....

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hstone of reasonableness under Article 14 of the Constitution. It was observed: "53. Now under Art. 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the concerned statute permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the Administra .....

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ination, 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 w .....

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ility 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 mu .....

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ub-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." 11. Similar view was reiterated in a later decision by the Gujarat High Court in Precision Fasteners Limited's case, (supra). 12. Further, the Madras High Co .....

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nds 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 subrule (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), notwithstandin .....

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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 inp .....

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pra), 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 requir .....

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by analogy or by trying to probe intentions of legislature and by considering what was substance of the matter. Court cannot import provisions in statutes so as to supply any assumed deficiency. In R.K.Garg's case (supra), the Supreme Court noted that since test of reasonableness was not passed as required under Article 14, the Act and the ordinance were invalid as both infringed Article 14 of the Constitution. In P.M.Ashwathanarayana Setty's case (supra), the Apex Court was dealing with .....

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tax credit being in the nature of concession under the Tamil Nadu Value Added Tax Act, 2006, it has to be availed in the manner prescribed by the Act. There is no quarrel with the propositions enunciated by the courts in the above said decisions. The principles laid down therein are well recognized. The situation in the present case is different. 14. We express our concurrence with the judgments of the Gujarat High Court in Indsur Global Limited & Precision Fasteners Limited's cases (su .....

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