TMI Blog2016 (6) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-6-2016 - S. Manikumar And D. Krishna Kumar, JJ. For the Appellant : Mr. T. Chandrasekaran JUDGMENT ( Judgement of this Court was made by S. Manikumar, J. ) Civil Miscellaneous Appeal is directed against the Final Order No.41253 of 2015, dated 25.09.2015, passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), South Zonal Bench, Chennai 600 006, setting aside the demand of duty and penalty. 2. Before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, M/s.Star Drugs Research Labs Ltd., 1st respondent herein, has contended that they are engaged in the business of manufacture of P or P medicaments, falling under Chapter 30 of Central Excise Tariff Act, 1985. They defaulted in making the payment of duty under deferred monthly payment facility, during the months of April, May, June and July, 2000 and hence, they were directed to pay the duty amount, on consignment basis. They paid the duty liability through CENVAT Credit and subsequently, there was change in law. The Department contended that the punishment would continue, till the default is fully discharged and during that period, duty has to be paid through Personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, on the 1st respondent-assessee offering a Bank Guarantee for ₹ 26 Lakhs, to the appellant, appeal has been taken up. 5. Before CESTAT, Madras, the 1st respondent-assessee has contended that the issue is covered by a decision in M/s.Noble Drugs Ltd., v. CCE, Nasik reported in 2007 (215) ELT 500 (Tri.LB). They also relied on the decisions in Indsur Global Ltd., v. UOI reported in 2014 (310) ELT 833 (Guj.), Precision Fasteners Ltd., v. CCE reported in 2014 (12) TMI 655 and CCE, Madurai v. Kaleeswarar Mills [2013-TIOL-1209-CESTAT-MAD]. Added further, the assessee has also contended that when this Court in M/s.Malladi Drugs Pharmaceuticals Ltd., v. UOI and others reported in 2015 (323) ELT 489 (Mad.), held Rule 8(3A) as ultra vires of Article 14 of the Constitution of India, the same is binding on the Department. 6. Per contra, the appellant has contended that Rule 8(3A) of the Central Excise Rules, 2002, restrains the assessee from using CENVAT credit, until the entire outstanding demand, including the interest is paid. A contention has also been made to the effect that the consequence of non-payment of excise duty or failure, it shall be deemed that such goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment of CENVAT credit under CCR and the said Rule 8(3A) is arbitrary and violative of Article 14 of the Constitution. Accordingly, the Hon'ble High Court was struck down the Rule 8(3A) as unconstitutional. The jurisdictional Madras High Court's ruling is binding on the jurisdictional adjudicating authority and also binding on this Tribunal. 8. Assailing the correctness of the order impugned, appeal has been filed, raising the following substantial questions of law, (1) Where the decision on the CESTAT is correct in law, especially with the introduction of non-obstante clause was introduced by the insertion of sub-rule (3A) of Rule 8 of the Central Excise Rules, with effect from 01.04.2005 and especially due to the reason that the present rule which is applicable to the issue on hand, ie., Rule 8(3A) clearly defined that the duty should be paid only in account current (PLA) if the assessee defaults in payment of duty beyond the time limit prescribed therein. (b) Whether in the facts and circumstances of the case, the payment of duty utilizing CENVAT credit during default period is a valid discharge of duty liability under the Excise Law. 9. Reiterating the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are paid, whichever is later and during this period the manufacturer shall be required to pay excise duty for each consignment by debit to the account current referred to in clause (b) and in the event of any such failure it will be deemed as if such goods have been cleared without payment of duty and the consequences and penalties as provided in the Central Excise Rules shall follow. 12. After following the principles of natural justice and by observing that payment through CENVAT Credit Account was not proper; such payments through credit account were null and void; those clearances of goods were clearances without payment of duty; duty involved therein should be paid through Account Current, the Jurisdictional Officer, Assistant Commissioner of Central Excise, has passed orders in No.5 of 2001, dated 21.06.2001, imposing a penalty of ₹ 10,000/-. 13. In Malladi Drugs Pharmaceuticals Ltd., v. Union of India reported in 2015 (323) ELT 489 (Mad.), constitutionality of Rule 8(3A) of the Central Excise Rules, 2002, was challenged on the grounds that it was ultra vires to the object and scope of the Central Excise Act and CENVAT Credit Scheme. Proceedings initiated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been relevant. In exercise of such powers, notification No.17/2006 was issued providing for withdrawal of facilities and for imposition of restrictions against who are prima facie found to be knowingly involved in any of the following: (a) removal of goods without the cover of an invoice and without payment of duty; (b) removal of goods without declaring the correct value for payment of duty, where a portion of sale price, in excess of invoice price, is received by him or on his behalf but 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 believe as not genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he duty already paid to the Government. It is true that such a provision is made because 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 dealing with rule 57F which was introduced in the Central Excise Rules, 1944 under which credit lying unutilized in the Modvat credit account of an assessee on 16th March 1995 would lapse. Such provision was questioned. The Supreme Court held that since excess credit could not have been utilized for payment of the excise duty on any other product, the unutilised credit was getting accumulated. For the utilization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... triction or whether the Administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc. In such cases, the administrative action in our country, in our view, has to be tested on the principle of 'proportionality,' just as it is done in the case of the main legislation. This, in fact, is being done by our Courts.'' 34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extent 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 by him. It also is a serious affront t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., reported in 1999 (112) E.L.T.353 (SC) and the same reads as follows: 17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product 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. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imum period which the Commissioner could have condoned. It was in this background the Court held that the issues which are closed cannot be reopened. It was noted that there were other proceedings between the same assessee and department pending at various stages on same issue. It was, therefore, provided that the particular order in challenge would not be disturbed but that the benefit of declaration of invalidity of the rule would be available to the petitioner in other pending proceedings. 7. In view of such clear distinction in facts, the modus adopted in the said case in case of Indsur Global Ltd., (supra) cannot be applied in the present case. The impugned tax demands and show cause notice are set aside. Resultantly, all subsequent actions, if any, taken by the department would be set at naught. Petition is allowed. Rule is made absolute accordingly.'' 16. Though the learned standing counsel appearing for the appellant submitted that the decision in Malladi Drugs Pharmaceuticals' case (cited supra), has been challenged, no copy of the order of stay is placed before us. Facts and the dictum laid down in Malladi Drugs Pharmaceuticals' case (cited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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