TMI Blog2022 (7) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... at the close of the January 2013. If they the appellant request to operate under the LTU scheme was allowed during any month prior to January 2013 or during the month of January 2013, they would have transferred this balance to their unit in Mumbai and would have utilized the same for payment of the duty. In fact appellant transferred this amount from their Hyderabad unit after being accorded the permission to join LTU on 28.02.2013. They utilized this transferred credit for payment of the defaulted duty for the month of January 2013. The delay in according the permission to operate as LTU, was primary reason for the delay in available credit from the Hyderabad Unit to Mumbai Unit. There are no justification in holding that the payment of amount of Rs 1,92,64,263/- from their CENVAT account was not enough to discharge the duty arrears for the month of Jan-2013 in terms of Rule 8 of the Central Excise Rules, 2013. Undisputedly appellants have discharged the duty as demanded in the show cause notice and confirmed against them for the subsequent period from their CENVAT account. The demands have been made against them considering that the payment of the defaulted duty for the Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as it existed then provided a mechanism for ensuring the payment of the admitted duty liability of the month by the due date as per Rule 8. In the present case admittedly during the period of default appellants have acted as per the provisions of Rule 8 (3A) and have discharged duty consignment wise without utilizing the CENVAT Credit available with them. In the case of SHIVAM PRESSINGS VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I [ 2015 (7) TMI 581 - CESTAT MUMBAI] referred by the authorized representative, tribunal has in para 4.1, after referring to the order of Hon ble Gujarat High Court in case of INDSUR GLOBAL LTD. VERSUS UNION OF INDIA 2 [ 2014 (12) TMI 585 - GUJARAT HIGH COURT] , dropped the demand of duty made treating the payments made through CENVAT account as proper payment of duty in respect of the consignments cleared during the period of default. Thus by application of the ratio of this judgement, the demand of duty made by the revenue for the period after 26.03.2013, the demand of duty needs to be set aside. Appeal allowed - decided in favor of appellant. - Excise Appeal No. 85996 of 2015 - A/85624/2022 - Dated:- 13-7-2022 - HON BLE MR. SANJIV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticee started paying Central Excise duty for each consignment as per the provisions of Rule 8(3A) of Central Excise Rules, 2002 for the said default. Later on the default amount of Rs.1,92,64,263/- was paid on 25.03.2013 through CENVAT credit account along with interest amount of Rs. 4,56,009/- vide PLA E. No.346/26.03.2013. 2.3 As per Rule 8(3A) of Central Excise Rules 2002 Appellant should have paid the duty on clearances effected during January 2013 by 6th February,2013, further extended upto 05.03.2013, beyond which the noticee was required to pay the Central Excise duty without utilizing the Cenvat credit for each consignment at the time of removal of goods. However the noticee paid duty by utilizing Cenvat credit in contravention of Rule 8(3A) of Central Excise Rules, 2002. 2.4 For the period 26.03.2013 to 31.12.2013 the Central Excise duty of Rs. 31,85,56,189/- was paid by the assessee through their Cenvat credit account. A show cause notice dated 31.01.2014 was issued to them asking them to show cause as to why:- i. The clearances effected in the month of January 2013( duty of Rs.1,92,64,263/-) and the clearances effected for the period 26.03.2013 to 31.12.2013 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64,263.00 on 26.03.2013, is correct and proper in view of Rule 12A of the CENVAT Credit Rules, 2004, and Rule 3(4) relied upon by the learned Commissioner has no application as Rule 12A beings with non-obstante clause and it overrides Rule 3(4) of the Rules. In any event, proviso to Rule 3(4) of the CENVAT Credit Rules is held to be ultra vires by the Hon'ble Gujarat High Court. In the case of Advance Surfactants India Limited- [2017 (358) ELT 53 (GUJ)] Since the Appellant has fully complied with Rule 8(3A) the demand made is bad in law. Hon'ble High Courts of Gujarat [Indsur Global Limited reported in 2014 (310) E.L.T. 833 (Guj.)], Bombay [Nashik Forge Private Limited-[2019(368) ELT 20 (Bom)]] and Delhi have held that Rule 8(3A) of the Rules is ultra vires and is struck down by the Hon'ble Courts and this Hon'ble Tribunal following the said judgment has allowed the appeals. 3.3 Arguing for the revenue, learned Authorized representative while reiterating the findings recorded in the impugned order submits that.- The entire dispute revolves around the issue as to whether the payment of the duties in dispute through the CENVAT account is correct in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pak Misra and Hon'ble Mr. Justice N.V. Ramana on 11-1-2016 issued notice in the Petition for Special Leave to Appeal (C) No. CC 229 of 2016 filed by Commissioner of Central Excise, Chennai III (Respondent being Titan Industries Ltd.) against the Judgment and Madras High Court in W.P. No. 27363 of 2012 as reported in 2015 (323) E.L.T. 489 (Mad.) (Malladi Drugs Pharmaceuticals Ltd. v. Union of India). While issuing the notice in the petition, the Supreme Court passed the following order: Issue notice returnable within eight weeks. There shall be interim stay of the impugned judgment and order dated 27-3-2015 passed by the High Court of Judicature at Madras in Writ Petition No. 27363 of 2012 till next date of hearing. Tag with SLP (C) No. 28309 of 2015. SLP (C) No. 28309 of 2015 pertains to UNION OF INDIA vs. INDSUR GLOBAL LTD [Commissioner v. Titan Industries Ltd. - 2016 (341) E.L.T. A155 (S.C.)] Further in the case of Commissioner of Customs, Mundra V/s Cargill India Pvt. Ltd. The Hon ble Supreme Court has held that when matter pending with SC lower authorities not to decide {2019-TIOL-549-SC-CUS] In C. Excise Appeal No.24 of 2016 and 288 of 2016 before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8(3A) ibid imposes wholly unreasonable restriction which is not commensurate with wrong sought to be remedied. That it is irrational and arbitrary and therefore violative of Article 14 of the Constitution of India. That it is also a serious affront to his right to carry on trade or business guaranteed under Article 19(1)(g) ibid. 4.3 The Hon'ble Gujarat High Court further held that subordinate legislation can be struck down on grounds of being ultra vires or conflict with parent Act, or being unreasonable or wholly arbitrary or irrational. The Court relied upon the judgement in the case of Hinsa Virodhak Sangh v. Mirzapur Moti Kureshi Jamat [(2008) S SCC 33 ) wherein it was observed that while judging whether a restriction is reasonable or not, one important consideration is whether the restriction is disproportionate. The Court also relied upon the judgement in the case of Chintamanrao v: State of M.P. ( AIR1951 SC118 ] wherein it was observed that while judging the validity of rules, the principle of proportionality should be applied. Following the decision in the case of Eicher Motors Ltd. (supra) it was observed that a manufacturer obtains credit for the excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is strictly prohibited. 4.5 In this context it will be relevant le peruse the judgement delivered in the case of Sharp Industries Ltd. V. C.C.E. Thane II [2014 (304) E.L.T. 689 (Tri.. Mumbai)] wherein it was held that the rigour of Rule 8 (3A) operates notwithstanding anything contained in sub-rule (1) and (4) of Rule 3 of the CENVAT Credit Rules, 2004. Sub-rule 4(b) of the CENVAT Credit Rules, 2004 permits utilization of CENVAT credit for payment of duty of excise on any final product. This provision makes the position very clear that CENVAT credit cannot be used as a matter of right for payment of duty of excise, in case the assessee defaults in payment of duty before the cut off period Rule 8 (3A) of Central Excise Rules, 2002. The tribunal also placed reliance on the judgement delivered by Madras High Court in the case of Unirois Airtex ( 2013 (296) E.L.T. 449 ( Mad.)] wherein it was held that the amount required to be paid as arrears of revenue is to be paid in without utilization of Cenvat credit. It is a settled law that what is not allowed directly cannot be claimed/allowed indirectly. Any other interpretation will make the restriction relating to utilization of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment towards duty in terms of Rule 8 (3A) of Central Excise Rules, 2002. 4.3 During the course of arguments counsel for appellants had submitted a timeline depicting the events leading to issuance of show cause notice and impugned order. Said timeline is reproduced below. Date Particulars 09.03.2012 The Appellant applied for membership of LTU. 06.02.2013 The Appellant defaulted in payment of part of dt 1,92,64,263.00 for the clearance of January, 2013. 28.02.2013 The application of the Appellant to become member of LTU was granted/allowed. 7.3.2013 In view of default on in payment of duty due on 6.2.2013 (for the month of January, 2013), the Appellant cleared the goods on payment of duty in cash on consignment basis and therefore there is no demand for the clearance from 7.3.2013 to 26.03.2013. 26.03.2013 The Appellant transferred credit of Rs. 7,51,90,000.00 under Rule 12A(4) of the CENVAT Credit Rules, 2004 from Hyderabad factory to Plant I at Thane. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee under Rule 8(3A) of Central Excise Rules, 2002 read with Section 11A of Central Excise Act, 1944; c. interest at appropriate rate on the said amount should not be demanded from them under Rule 8(3) of the Central Excise Rules, 2002 read with Section 11AA of the Central Excise Act. 1944; d. the interest amount of Rs. 4,56,009/- (Rupees four lakhs fifty six thousand and nine) paid vide PLA Entry No. 346/26.03.2013 should not be appropriated against the interest demanded from them under Rule 8(3) of the Central Excise Rules, 2002 read with Section 11AA of the Central Excise Act. 1944; e. Penalty should not be imposed upon them under the provisions of Rule 25 of Central Excise Rules, 2002. 4.6 The provisions of Rule 8 as they existed during the relevant period have been noted by the Hon ble High Court of Gujarat in their decision in the case of Indsur Global referred earlier in following manner. 19. Rule 8 of the Central Excise Rules pertains to the manner of payment. Sub-rule (1) of Rule 8 requires that the duty of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date, has to pay excise duty for each consignment at the time of removal without utilizing the Cenvat credit till he pays the outstanding amount including interest. In the event of failure, it would be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in the rules would follow. 20. We may record that sub-rule (3A) which was introduced with effect from 1-6-2006 has since been substituted by notification, dated 11th July 2014 and the current applicable sub-rule (3A) reads as under : (3A) If the assessee fails to pay the duty declared as payable by him in the return within a period 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. It can thus be seen that with the substitution of sub-rule (3A) of Rule 8, the requirement of the defaulter to clear the goods on payment without availing Cenvat credit has been done away with. Instead, such an assessee would invite penalty at the rate of one per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional. 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. 4.7 This decision of Hon ble Gujarat High Court has been affirmed by the Hon ble Bombay High Court in case of Nashik Forge Pvt Ltd [2019 (368) ELT 20 (BOM)] stating as follows: 3. The proceedings against the respondents were commenced on the basis of violation/breach of Rule 8(3A) of the Central Excise Rules, 2002. The impugned order of the Tribunal has noted that Rule 8(3A) of the Central Excise Rules, 2002 has been struck down as unconstitutional by the High Courts of Gujarat, Madras and Punjab Haryana by the following judgments : (a) Indsur Global Ltd. v. Union of India - 2014 (310) E.L.T. 833 (Guj.) (b) Shreeji Surface Coatings P. Ltd. v. Union of India - 2015 (320) E.L.T. 764. (Guj.) (c) Malladi Drugs Pharmaceuticals P. Ltd. v. Union of India - 2015 (323) E.L.T. 489 (Mad.) (d) Sandley Indus. v. Union of India - 2015 (326) E.L.T. 256 (P H). 4. In the above view the impugned order allows the respondent s Appeal as the Rule under which the proceedings were commenced against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r facts has been shown to us, which would justify our taking a different view in these two appeals. 6. However, it must be pointed out that Mr. Ochani, Learned Counsel appearing for the Appellant invited our attention to an order dated 5th February, 2018 passed by this Court in Central Excise Appeal Nos. 24 of 2016 and 28 of 2016 wherein, the Court was informed that an identical issue had been raised before the Apex Court and this Court had adjourned both the appeals sine die. This for awaiting the decision of the Supreme Court on appeal filed by the State against the decision of the Gujarat High Court in Indsur Global Limited (supra) [2014 (310) E.L.T. 833 (Guj.)]. It must be pointed out that the aforesaid order dated 5th February, 2018 was not pointed out to the bench which passed an order on 25th April, 2019 (M.S. Sanklecha, J. was a member of the bench which passed the order on 25th April, 2019). Thus, this Court examined the issue on merits and passed a final order on 25th April, 2019. 7. As our order dated 25th April, 2019 has already taken a view on the issue raised in these two appeals, therefore, we are inclined to follow the same. We, thus dispose of the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be : Provided further that .. 4.10 Board has considered issue of payments of arrears from the CENVAT Credit account that, have arisen in terms of the Rule 8 of the Central Excise Rules 2002 and other arrears, and has clarified vide Circular No.962/05/2012-CX, dated the 28th March, 2012 as follows: Payment of arrears from Cenvat Credit earned at a later date Reference was received from the field formation seeking clarification on the issue as to whether the arrears of duty can be paid by utilizing the cenvat credit which has accrued subsequent to the period to which the arrears pertained. Such clarification has been sought in view of first proviso to rule 3(4) of the Cenvat Credit Rules, 2004. As per this proviso, while paying duty of excise or service tax, as the case may be, the cenvat credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has in the case of Advance Surfactant [2017 (358) ELT 53 (Guj)] has held this proviso to be unconstitutional stating as follows: Considering Rule 3 of the Cenvat Credit Rules, 2004, which are framed in exercise of powers under Section 37 of the Central Excise Act, 1944 it provides for Cenvat Credit allowable to the manufacturer or producer of final products. A manufacturer or producer of the final product is entitled to Cenvat Credit under Rule 3. However, while allowing Cenvat Credit allowable under Rule 3 of the Cenvat Credit Rules first proviso to sub-rule (4) of Rule 3 restricts utilization of Cenvat Credit for discharging the duty liability incurred by the manufacturer and as per the said provisions Cenvat Credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty relating to that month or quarter, as the case may be. Thus, the effect of the said proviso would be that though a manufacturer is obliged to discharge excise duty liability by 5th or 6th day of the next month, the Cenvat Credit taken by the manufacturer only till the end of the month to which the excise duty relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation between input/inputs services on one hand and the final excisable product on the other hand. Therefore, proviso to Sub Rule (4) of Rule 3 of the Cenvat Credit Rules, which disentitles the manufacturer utlization of Cenvat Credit availed in a particular month for the goods manufactured in the preceding month can be said to be contrary to the law laid down by the Hon ble Supreme Court in the aforesaid decisions as well as contrary to the CENVAT Credit Scheme, and therefore, the same is invalid and unconstitutional . In view of the said decision of Hon ble Gujarat High Court and the clarification issued by the Board there seem to be nothing wrong in the appellants discharging the defaulted duty liability as per Rule 8 from their CENVAT account. 4.12 Appellant had filed the Consent Form For Companies Participating in LTUs which was received in the Office of The Chief Commissioner LTU Mumbai, on 9th March 2012. However they were given the permission to operate as LTU vide letter dated 28.02.2013, nearly one year after filing the consent form. The text of the letter dated 28.02.2013 is reproduced below: No. CC/LTU/Consent/041 February 28, 2013 PAN: AAO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not admissible. 4.14 Rule 12 A (4) of the CENVAT Credit Rules permitted the transfer of CENVAT Credit from unit of the person operating under the LTU scheme to the other unit of the same person. Appellant unit at Hyderabad was having sufficient credit balance of Rs 8,56,63,033/- in their CENVAT Account at the close of the January 2013. If they the appellant request to operate under the LTU scheme was allowed during any month prior to January 2013 or during the month of January 2013, they would have transferred this balance to their unit in Mumbai and would have utilized the same for payment of the duty. In fact appellant transferred this amount from their Hyderabad unit after being accorded the permission to join LTU on 28.02.2013. They utilized this transferred credit for payment of the defaulted duty for the month of January 2013. The delay in according the permission to operate as LTU, was primary reason for the delay in available credit from the Hyderabad Unit to Mumbai Unit. Hon ble Delhi High Court has in similar circumstances held as follows: 2. The brief facts are that the liability of the appellant for the month of April, 2012 - payable by 5-3-2012 was Rs 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the show cause notice raises the demand by invoking Rule 8(3A) of Central Excise Rules, 2002 read with Section 11A of Central Excise Act, 1944. Adjudicating authority has confirmed the demand under the same provisions. If that is so as per para 5 of the Board Circular of 2012, referred to by us earlier after confirmation of the demand these demands can be paid by utilization of the CENVAT Credit. 4.16 Plain reading of Rule 8 (3A) as it was then would clearly show that it is not amenable to Section 11A of the Central Excise Act, 1944. Rule itself declares that in cases where the rule apply, the clearances are to be made on payment of duty in cash and on consignment basis. In case of default from the same the goods will be treated to be cleared without payment of duty and consequences as per law will follow. By making the demand as above nearly one year later, for the clearances made without payment of duty revenue was not only soft pedaling the issue but was permitting the clearance without payment of duty. The natural consequence of the clearances made without payment of duty was to seize and confiscate all the goods that were cleared by the appellant without payment of duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowed directly cannot be allowed/claimed indirectly. Board s Circular dated 28th March, 2012 will not be applicable in view of reasons stated earlier. We, therefore, hold that the appellants are required to pay an amount of Rs. 8,00,09,346 which is equivalent to the Cenvat credit utilized during the period 6-12- 2010 to 4-7-2011 in cash. They will, however, be free to take Cenvat credit of equivalent amount and utilize it for future clearances. Learned Counsel has cited certain judgments of this Tribunal. In view of the above analysis as also the fact that these were delivered before the Hon ble Madras/Karnataka High Court judgments, we do not consider it necessary to discuss these. This decision was rendered by the tribunal following the decision of Single Judge of Hon ble Madras High Court in case of Unirols Airtex [2013 (296) ELT 449 (Mad)]. 4.19 A division bench of Madras High Court has in case of Malladi Drugs and Pharmaceuticals Ltd, concurred with the decision of the Hon ble Gujarat High Court stating as follows: 5. It is not the case of the Department in this batch of writ petitions that the petitioners-assessees have illegally or irregularly taken the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 - TIOL - 2211 - HC-AHM - CX, has held as follows :- 4. When the statutory basis for issuance of a show cause notice and raising tax demand is knocked down, the very proceedings would have to be struck down. 5. Learned counsel Shri Oza for the revenue, however, submitted that during the pendency of this petition, the adjudicating authority passed the final order which has not been challenged. He drew our attention to the later portion of the said decision in case of Indsur Global Ltd. (supra) in which this Court even while striking down the portion of sub-rule (3A) of Rule 8, did not disturb the orders passed by the Revenue authorities as upheld by the Tribunal, since such dispute had achieved finality. Counsel would urge that in the present case also the same course should be adopted. 6. In our opinion, however, there is vital difference between the two sets of facts. In the present case, the petitioner had raised the challenge to the statutory provisions even before the Adjudicating Authority had taken a final decision. He had, along with rule, also challenged the show cause notice. In the case of Indsur Global Ltd. (supra) the petitioner had unsuccessful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gujarat, Rule 8(3A) would imply that if the assessee defaults in payment of duty beyond 30 days from the due date, the assessee shall pay excise duty for each consignment at the time of removal till the date the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow. Thus, as per rule 8(3A) and the judgment of the Hon'ble Gujarat High Court, the appellant was expected to clear the goods for each consignment at the time of removal till the outstanding amount including interest is paid. It is not in dispute that for the demands made, the appellant has not paid the duty consignment-wise either through cenvat credit account or through PLA. Obviously they have violated Rule 8(3A) and the said rule provides that it shall be deemed that such goods have been cleared without payment of duty and consequences and penalties as provided in these rules shall follow. And in para 4.4, dropped the demand of duty made treating the payments made through CENVAT account as proper payment of duty in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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