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Vikash J. Shah, Director AND M/s. Shah Yarn Tex (P) Ltd. Versus The Commissioner (Appeals) , Coimbatore and Others

2016 (2) TMI 442 - MADRAS HIGH COURT

Eligibility of CENVAT credit - based on tribunal decision - whether the assessees are not even entitled to file an Appeal (before the CESTAT), based on a mere communication and therefore, the finding given by the CESTAT stating that the assessees ought to have been given CENVAT Credit, cannot be taken advantage of, by the assessees? - Held that:- When the input duty credit is allowed, the duty is deemed to have been paid on the original date of payment of duty. When input duty credit is allowed, .....

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, the question of payment of interest and penalty do not arise. - Decided in favour of assessee - Civil Miscellaneous Appeal Nos.2576 and 2577 of 2015 and M.P.Nos.1 and 1 of 2015 - Dated:- 29-1-2016 - MR. M.JAICHANDREN AND MRS. S.VIMALA, JJ. For The Appellant in both CMAs : Mr. S.D.S.Philip For The Respondents in both CMAs: Mr. A.P.Srinivas COMMON JUDGMENT (Judgment of the Court was delivered by S.Vimala, J.,) These Civil Miscellaneous Appeals have been filed, one filed by the Director and anoth .....

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yarn, mercerized the same and cleared the product without payment of duty during the said period. 2.1. The original authority issued a show cause notice, dated 22.09.2004, as to why an amount of ₹ 1,22,300/- being the duty on Mercerized yarn should not be demanded along with penalty and interest. The appellants sent a reply, dated 19.10.2004 and filed a written submissions, dated 21.12.2004, contending that the show cause notice was timebarred; that there was no intention on the part of th .....

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the Original Authority made the following demands:- (i) payment of interest at applicable rate under Section 11AB of the Central Excise Act, 1944 (hereinafter referred to as the Act ); (ii) penalty of ₹ 1,22,300/- under Section 11 AC of the Act; (iii) penalty of ₹ 20,000/- on the Director, under Rule 26 of the Central Excise Rules, 2002 (hereinafter referred to as the Rules ). 2.2. The appellants filed an appeal before the Commissioner of Central Excise (Appeals), who rejected the a .....

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he procedure like filing of declaration for availing the benefit of CENVAT Credit etc., But the CESTAT held that a substantive right is not to be denied on the ground of infraction of procedural provision. On these grounds, the CESTAT set-aside the order of the lower authorities and allowed the appeal to that extent. 2.4. Thereafter, on 27.02.2009, the second respondent herein sent a communication, requiring the appellants to pay the penalty of ₹ 1,22,300/-. The appellants replied on 16.03 .....

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y must be paid and threatened stating that, unless the payment is made, recovery proceedings would follow. 2.5. The appellants filed an appeal before the first respondent, challenging the communication, dated 04.10.2013. The first respondent returned the appeal dated 11.12.2013, without giving an opportunity and without assigning any reasons. Therafter, a communication, dated 17.12.2013 was issued, directing the appellants to pay the arrears due to the Department. Thereafter, the appellants appr .....

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munication and therefore, the appeal is not maintainable. However, there was an observation that the Department should have quantified the demand before initiating the recovery proceedings. Thereafter, the appellant sought for quantification of the demand. The second respondent issued a reply, dated 22.08.2014, stating that the duty demanded is 'nil' and directed the appellant to pay penalty and interest. 2.6. It is relevant to point out that when the Department replied stating that the .....

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the impugned order of the third respondent Tribunal confirming the erroneous holding that the letter / communication, dated 04.10.2013, sent by the second respondent demanding payment of penalty is not an order but a mere communication? (ii) Whether any penalty can be demanded in the absence of duty payable by the appellant? (iii) Whether any penalty will arise when the Central Excise Act and Rules permit adjustment of CENVAT credit towards duty payable? 3. The provisions of Sections 11AB and 1 .....

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dition to the duty, be liable to pay interest at such rate not below ten per cent. and not exceeding thirtysix per cent. per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first date of the month succeeding the month in which the duty ought to have been paid under this Act, or from the date of such erroneous refund, as the case may be, but for the provisions contained in sub-section (2), or sub-section (2B), of section 11A till .....

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be payable on the whole of the amount, including the amount already paid. 4[(2) The provisions of sub-section (1) shall not apply to cases where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President. Explanation 1.- Where the duty determined to be payable is reduced by the Commissioner (Appeals), the Appellate Tribunal, National Tax Tribunal or, as the case may be, the Court, the interest shall be payable on s .....

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reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined: Provided that where such duty as determined under sub-section (2) of section 11A, and the interest payable thereon under section 11AB, .....

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determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, for the purposes of this section, the duty, as reduced or increased, as the case may be, shall be taken into account: Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, the benefit of reduced penalty under the first proviso shall be .....

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ior to the date on which the Finance Act, 2000 receives the assent of the President; (2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person. 4. Having considered the provisions regarding the payment of penalty and interest, the primary question is, when the liability to pay interest and penalty arises. 4.1. The contention of t .....

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ted from the excise duty payable on the goods manufactured. With effect from 10.09.2004, New Cenvat Credit Rules 2004 was introduced which provided for credit of duty paid on inputs, Capital goods and service tax paid on input services used in or in relation to manufacture of excisable goods. A service provider is entitled to credit of excise duty paid on inputs and Capital goods and service tax paid on input services used by him for providing the output service. 5. This is a case where the Trib .....

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by the assessees. 5.3. Per contra, the learned counsel for the Assessees / appellants would submit that, it is the content and not the form of the communication that would decide the eligibility to file the appeal, and especially when the content threatended the assessees with the consequence of facing the recovery proceedings, certainly the assessees are eligible to file the appeal and therefore, the finding of the CESTAT is legal and valid. In support of the said contention, the decision repor .....

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t the amount of interest [Rs.3,66,360/-] was quantified in terms of Rule 8. However, in his letter dated 3.4.2007, the Superintendent seems to have given the goby to Rule 8 and to have directly invoked Section 11AB. The law does not permit the department to dilly-dally like this to the detriment of an assessee. Both the letters of the Superintendent are of appealable nature. In any case, his letter dated 4.9.2004 demanding interest with effect from 1.4.2003 under Rule 8(3) (as amended), without .....

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ssessees, then the assessees are entitled to challenge the same, though it is worded as a letter and not as an order . It was really astonishing to read such a finding by the Commissioner of Income Tax (Appeals) that the appeal is not maintainable, by construing the communication as a letter and not as an order. 6. The learned counsel for the respondent submitted that the imposition of interest and penalty is mandatory and the Courts have no discretion to reduce the penalty and therefore, the as .....

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discretion vested with the authorities to waive the interest or penalty. 6.1. On the other hand, the learned counsel for the Assessees would submit that, even though no discretion is vested with the authorities to reduce the interest or penalty and the main issue to be considered is, when there is no liability to pay any outstanding tax and when there is no delay or non-payment of duty, the liability to pay the interest or penalty does not arise for consideration, the decision reported in 2015 ( .....

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that there is not even a delay or evasion in the payment, the question of imposing penalty does not arise and in support of the same, two decisions are relied upon:- (i) 2001 (128) E.L.T. 400 (Siddarth Petro Products v. CCE) where-under it has been held that, when the disallowance of Modvat Credit is on a filmsy grounds and when the appellants were entitled to Modvat Credit nothing remains for imposition of penalty. (ii) 1999 (113) E.L.T. 160 (Asian Alloys v. CCE) whereunder it has been held tha .....

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to have cleared the mercerized yarn without payment of duty. 8.1. It is not the case of the assessees that they are not liable to pay the tax, but the contention is that because of the confusion in the amendment and on account of want of knowledge that they did not pay and that, in any event, the duty payable was already available with the Department (as input credit), there is no question of any evasion or denial or violation of payment of duty. 8.2. The further contention of the learned couns .....

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ioned in proviso to Section 11A(1) of the Act and that unfortunately, provisions of Section 11 A(1) had been used unwarrantedly. 8.3. These issues raised by the assessees have been partly answered by the Tribunal. 9. Coming to the facts of the case on hand, in the Final Order, dated 05.09.2008, the CESTAT has given two vital findings, which reads as under:- I have found hardly any valid ground against the demand of duty on mercerized yarn; rejection by the lower authorities of the assessees' .....

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e, when the input duty credit is allowed, the duty is deemed to have been paid on the original date of payment of duty. When input duty credit is allowed, then there is no question of any liability to pay further duty. 10. When such is the legal consequence and when such kind of findings are staring at the face of the Department, whether the Department is at liberty to demand penalty and the interest, is the question to be answered. 10.1. The legal position, enunciated above, shows that the dema .....

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