TMI Blog2021 (8) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty has been imposed under Rule 25 of Central Excise Rules, 2002, equivalent to the demand of duty. In view of Hon ble High Court order since we conclude that payment of duty by utilizing the CENVAT Credit was proper mode of payment of duty during the period of default, the penalty imposed on the Appellant needs to be set aside. Since the appeal filed by the revenue do not take into account the decision of Gujarat High Court, subsequently in case of Indsur Global Ltd., holding the Rule 8 (3A) unconstitutional to the extent of the restricting the payment of Central Excise Duty by utilizing CENVAT Credit, there are no merits in the appeal filed by the Revenue. Appeal allowed. - Excise Appeal No. 460 of 2012 and 614 of 2012 - A/86663-86664/2021 - Dated:- 2-8-2021 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Shri D.H. Nadkarni, Advocate, for the Appellant Shri S.K. Hattangadi, Assistant Commissioner, Authorised Representative for the Respondent ORDER Both the appeals one filed by the revenue (Respondent) [E/614/2012] and other by the assessee (Appellant) [E/460/2012] are directed against Order in Original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- (₹ 1,44,53,761/- Cenvat + ₹ 2,89,074/- Ed. Cess + ₹ 1,44,547/- H S Ed. Cess) payable on the clearances made during the period from Nov 09 to July 2010 should not be recovered from them in cash under Section11A of the Central Excise Act, 1944 as they default in payment of duty beyond the period of 30 days for the month of Oct 2009. (iii) Interest should not be recovered from them under Section 11AB of the Central Excise Act, 1944 on default payment made during the month of October 2009. (iv) Interest should not be recovered from them under Section 11AB of the Central Excise Act, 1944 on non payment of duty in cash on the clearances made during the period from Nov 09 to July 2010 by non following the provisions of Rule 8 (3A) of CER, 2002. (v) the penalty should not be imposed under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 for contravention of provisions of Rule 4, 8(1), 8(3) 8(3A) of the Central Excise Rules, 2002 and Rule 3 (4) of the CENVAT Credit Rules, 2004. 2.4 The show cause notice was adjudicated by the Commissioner by the impugned order referred in para 1, supra. 2.5 Aggrieved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking and by the 5th day of the following month, in any other case. First proviso to sub-rule (1) provides that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March. Relevant portion of sub-rule (1) of Rule 8 reads as under : Rule 8. Manner of payment - (1) The duty on the goods removed from the factory or the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking and by the 5th day of the following month, in any other case : Provided that in case of goods removed during the month of March, the duty shall be paid by the 31st day of March . Sub-rule (2) of Rule 8 provides that the duty of excise shall be deemed to have been paid for the purposes of these rules on the excisable goods removed in the manner provided under sub-rule (1) and the credit of such allowed, as provided by or under any rule. Sub-rule (3) of Rule 8 requires the assessee who fails to pay the duty by due date to pay the same along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 21. From the statutory provisions, it can be seen that ordinarily as per Rule 4, duty on excisable goods is payable on removal. Such payment is to be made in the manner prescribed in Rule 8. Sub-rule (1) of Rule 8 provides for a facility of deferred payment of excise duty. Instead of an assessee paying duty on removal of each consignment, the duty is to be paid for the entire month by the due date which is the 6th day of the following month if the duty is paid electronically through internet banking and in all other cases, it would be the 5th day of the following month. It is in this context, therefore, under sub-rule (2) of Rule 8, it is provided that the duty of excise shall be deemed to have been paid for the purpose of the rules on the excisable goods removed in the manner provided under sub-rule (1) and the credit of such duty shall be allowed as provided under the rules. Combined reading of Rule 4 with Rules 8(1) and 8(2) of the Central Excise Rules would demonstrate that ordinarily excise duty is payable on removal. In terms of sub-rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution Bench decision of the Supreme Court in the case of State of Jammu Kashmir v. Triloki Nath Khosa - AIR 1974 SC 1. It is also well settled that the principle of presumption of constitutionality also applies to a delegated legislation. In the case of St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education - (2003) 3 SCC 321, it was observed that it is also well settled that in considering the vires of subordinate legislation one should start with the presumption that it is intra vires and if it is open to two constructions, one of which would make it valid and other invalid, the Courts must adopt that construction which makes it valid.... . 25. As held by the Supreme Court in the case of State of A.P v. McDowell Co. - (1996) 3 SCC 709, a law made by the Parliament or the State Legislature can be struck down on two grounds only, namely, lack of legislative competence or violation of any of the fundamental rights guaranteed in part III of the Constitution or any other constitutional provisions. However, the subordinate legislation does not enjoy the same level of immunity from the court s scrutiny. In addition to the two grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing law which are uncertain .. xxxx 77. In India arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. In India any enquiry into the vires of delegated legislation must be confined to the grounds on which plenary legislation may be questioned, to the ground that it is contrary to the statute under which it is made, to the ground that it is contrary to other statutory provisions or that it is so arbitrary that it could not be said to be in conformity with the statute or that it offends Article 14 of the Constitution. 26. With these parameters in mind, we may consider the petitioner s ground for challenge. Adverting to the question of lack of power to frame such rule, we may notice that Section 37 of the Central Excise Act, 1944 is the rule making power contained in the said Act. Sub-section (1) thereof provides that the Central Government may make rules to carry into effect the purposes of the Act. Sub-section (2) of Section 37 lists the various purposes for which such rules may provide. It begins with the expression in particular and without prejudice to the generality of the foregoing power, such ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sm for collection of tax already become due and payable. Had any new tax been levied or charge or penalty created under such rule, the question of falling back on the general power where specific provisions excluded, such a power would arise. Further, clause (ib) of sub-section (2) of Section 37 authorizes the Government to frame rules to provide for the assessment and collection of duties of excise, the authorities by whom functions under the Act would be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable and the recovery of duty not paid. This clause thus gives ample power to the Government to make rules for providing a mechanism for assessment and calculation of duties of excise, the authorities who would carry out such functions, the manner of payment of duty and most importantly, recovery of duty not paid. The fact that sub-rule (3A) of Rule 8 provides for the mechanism of duty unpaid is beyond cavil. It is precisely when an assessee who was given the facility of deferring the payment of duty beyond the clearance has not been able to pay the same by the due date and further defaults by another 30 days thereafter that sub-rule (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution 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 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 occasioned by reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or the rules made thereunder with an intent to evade payment of duty. Likewise, Section 11A which pertains to recovery of duties not levied or not paid or short levied or short paid or erroneously refunded makes a clear di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 further funds for payment of duty in addition to the duty which he has already paid. Cenvat credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his Cenvat credit account available to him 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 the public. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by Clause (6) of Article 19, it must be held to be wanting in that quality. 33. In the case of Om Kumar (supra), the Supreme Court recognized the applicability of the principle of proportionality in judging the validity of a provision on the touchstone of reasonableness unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 penalty at the rate of 1% per month on delayed payment of duty. 36. In the result, the condition contained in sub-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. 4.3 This decision of Hon ble Gujarat High court has been followed subsequently by Punjab and Haryana High Court in Sandley Industries v. UOI - 2015 (326) E.L.T. 256 (P H) and Malladi Drugs Pharmaceuticals Ltd. v. UOI - 2015 (323) E.L.T. 489 (Mad.). 4.3.1 Since the Rule 8 (3A) which r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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