Case Law Details
Commissioner Vs DRD Body Techs India Pvt. Ltd (Telangana High Court)
Conclusion: Rule 8(3A) applied to cases where assessee had defaulted in payment of excise duty beyond 30 days from the due date and it did not apply to every case where in the department, during the scrutiny of returns, during audit or during investigation found any additional amount payable as duty of excise. Tribunal had given cogent reasons for its finding that assessee’s case was a case of demand under Section 11A and was not covered by Rule 8(3A) and the Revenue was not correct in denying utilization of Cenvat Credit to the assessee by applying the said sub-rule.
Held: Assessee-company was engaged in bodybuilding i.e. it procured chassis manufactured by M/s Ashok Leyland and build the body completing it into a truck for the customers. The respondent was registered with the Central Excise Department and filing ER-1 returns and paying central excise duty. It was alleged by Revenue that the invoice value of the clearances for the following months was more than the value on which duty of excise was discharged. According to the appellant department, the respondent was required allegedly to clear the short paid amount pertaining to the month of November 2006 along with interest by January 5, 2007, as stipulated under Rule 8(3A) of Central Excise Rules, 2002, and the said short paid amount was paid along with interest on December 26, 2009. It was held that admittedly assessee had already paid as duty even before the audit declared amounts as payable. Rule 8(3A) applied to cases where assessee had defaulted in payment of excise duty beyond 30 days from the due date. So, the said rule could not apply to the instant case and as rightly held by the CESTAT, the said Rule did not apply to every case where in the department, during the scrutiny of returns, during audit or during investigation finds any additional amount payable as duty of excise. Such demands would be recoverable by issuing a notice under Section 11A of the Act and would be covered under Rule 8(3A). Tribunal had given cogent reasons for its finding that assessee’s case was a case of demand under Section 11A and was not covered by Rule 8(3A) and the Revenue was not correct in denying utilization of Cenvat Credit to the assessee by applying the said sub-rule. Thus, Tribunal rightly set aside the penalty imposed on the respondent and also the demand imposed on the respondent under Rule 8(3A).
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
This appeal is filed under sub-Section (1) of Section 35H of the Central Excise Act 1944 challenging the Final Order No. A/30845/2020 dt.21.02.2020 passed by the Customs, Excise and Service Tax Appellate Tribunal, Regional Bench, Hyderabad (for short ‘CESTAT’).
2. The Revenue preferred this Appeal and the respondent is M/s DRD Body Tech’s (India) Pvt. Ltd.
3. The respondent is engaged in body building i.e., it procures chassis manufactured by M/s Ashok Leyland and builds the body completing it into a truck for the customers. The respondent is registered with the Central Excise Department and filing ER-1 returns and paying central excise duty.
4. The records of the respondent were audited between 07.07.2009 and 10.07.2009, and it is alleged by the Revenue that the invoice value of the clearances for the following months was more than the value on which duty of excise was discharged; that the short paid duty of Rs.5,73,721/- was paid along with interest on 26.12.2009; that fully built value of model ‘Taurus 2516/2’ was revised from Rs.13,27,141 to Rs.13,40,658/- w.e.f., 03.03.2008; that the respondent had cleared model ‘Taurus 2516/2’ by adopting value of Rs.13,27,141/- vide Invoice No.s 458 dt.11.03.2008 to 479 dt.13.03.2008, thereby short paid duty of excise to the tune of Rs.42,898/- was paid along with interest on 08.10.2009.
5. According to appellant, the respondent was required allegedly to clear the short paid amount pertaining to the month of November, 2006 along with interest by 05.01.2007 as stipulated under Rule 8(3A) of Central Excise Rules, 2002, and the said short paid amount was paid along with interest on 26.12.2009.
6. A show cause notice in OR.No.81/2010-Adjn(CE)(commr.) dt.05.07.2010 for the default period 05.01.2007 to 26.12.2009 was issued asking the respondent as to why :
i. 5,73,721/- towards duty of excise short paid should not be demanded under proviso to sub-section (1) of Section 11A central Excise Act, 1944 read with Rule 8 of the Central Excise Rules, 2002.
ii. Rs. 21,72,22,934/- should not be demanded in cash towards duty of excise on clearances under sub-rule (3A) of Rule 8 of Central Excise Rules, 2002 read with proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944.
iii. 42,898/- towards the short paid duty of excise on the goods cleared vide invoice bearing S. No.s 458/11.03.2008 to 479/13.03.2008 should not be demanded under proviso to sub-section (1) of Section 11A of the Central Excise Act, 1944 read with Rule 8 of Central Excise Rules, 2002;
iv. 5,73,721/- paid by M/s DRD Body Tech’s (India) Pvt. Ltd. should not be adju8sted against the duty demanded at Sl.No.(i) above;
v. 42,898/- paid by M/s. DRD Body Tech’s (India) Pvt. Ltd. Should not be adjusted against the duty demanded at Sl.No.(iii) above.
vi. Interest under Section 11AB of Central Excise Act, 1944 should not be paid by them on the amounts demanded at Sl.No.(i) to (iii) above;
vii. Penalty under Section 11AC of Central Excise Act, 1944 should not be imposed on them towards short/default payment of duty demanded at Sl.No.(i) to (iii) above;
viii. Penalty under Rule 25 of the Central Excise Rules, 2002 should not be imposed on them for contravention of provisions of Rule 4, 6 and 8 of Central Excise Rules, 2002;
7. The said show-cause notice was adjudicated vide Order-in-Original No.29/2011-Adjn.(commr) CE, dt.30.09.2011 and the Adjudicating Authority has made the following order:
i. confirmed the demand of an amount of Rs.5,73,721/-towards excise duty short paid under sub-Section (2) of Section 11A of the Central Excise Act, 1944 read with Rule 8 of the Central Excise Rules, 2002 and appropriated an amount of Rs.5,73,721/- paid by the respondent against the same;
ii. ordered that an amount of Rs.21,72,22,934/- should be paid by the respondent in PLA/Cash towards duty of excise on clearances effected from 05.01.2007 to 26.12.2009, under sub-rule (3A) of Rule 8 of Central Excise Rules, 2002 read with sub-Section (2) of Section 11A of the Central Excise Act, 1944;
iii. confirmed the demand of an amount of Rs.42,898/-towards excise duty short paid (including education cesses) under sub-Section (a) of Section 11A of the Central Excise Act, 1944 read with Rule 8 of the Central Excise Rules, 2002 and appropriated an amount of Rs.42,898/- paid by the respondent against the same;
iv. ordered for payment of interest at applicable rates under Section 11AB of Central Excise Act, 1944; on the amounts demanded at Sl.No.(i) to (iii) above and appropriated the amount of Rs.1,57,352/- paid by the respondent against the same;
v. ordered for payment of interest at applicable rates under Section 11AB of Central Excise Act, 1944; on the amounts demanded at Sl.No.(ii) above;
vi. imposed a penalty of Rs.6,16,619/- on the respondent under Section 11AC of Central Excise Act, 1944;
vii. imposed a penalty of Rs.10,00,000/- under rule 25 of Central Excise Rules 2002.
8. Aggrieved by the said Order-in-Original, the respondent preferred an Appeal No. E/45/2012 before the CESTAT.
9. The CESTAT by final order No. A/30845/2020 dt.21.02.2020 allowed the appeal of the respondent and set aside the Order-In-Original to the extent it imposed a demand upon the respondent under Rule 8(3A) of the Central Excise Rules, 2002 and penalties under Section 11AC of the Central Excise Act, 1944 and Rule 25 of the Rules, 2002. The CESTAT held that:
“7. A plain reading of Rule 8(3A) of Central Excise Rules, 2002, makes it clear that it applies to such cases wherein the assessee had defaulted in payment of excise beyond thirty days from due date. Thos does not apply to the present case because in their case they have already paid as duty even before the audit whatever they declared as payable. The audit actually found that some additional amounts were payable over and above what was declared in their ER returns as duty. Rule 8(3A) does not apply to every case where the department, during the scrutiny of returns, during the audit or during the investigation finds any additional amount is payable as duty of excise. All such demands will be recoverable by issuing a notice under Section 11A of Central; Excise Act, 1944, but they do not get covered under Rule 8(3a) of Central Excise Rules, 2002. Otherwise, in every case, where the demand is raised under Section 11A Rule 8(3A) would have been invokable which will result in utter chaos and confusion. For instance, if Rule 8(3A) is applied in all demand cases in every show-cause notice, for a demand \under Section 11A the department can seek to deny the benefit of CENVAT Credit on all clearances made after the alleged short payment and thus make a massive demand. At every stage of adjudication, i.e., at the level of adjudicating authority, First Appellate Authority, the CESTAT, the High Court, and the Hon’ble Supreme Court, the decision with regard to the demand under Section 11A may vary and consequently there will be massive charges in the demands under rule 8(3A) as the date from which CENVAT Credit should be denied changes. It is also against the very letter and spirit of Rule 8(3A). Therefore, we find that the assessee’s case is a case of demand under Section 11A and is not covered by Rule 8(3A) and hence demand on this ground needs to be set aside. Consequently, any penalty imposed on this ground also needs to be set aside. Notwithstanding this interpretation of Rule 8(3A), we also find this sub-rule has already been held as ultra vires by the High Court of Gujart in the case of Indsur Global Limited”.
10. Challenging the said order, this Appeal is filed by the Revenue.
11. It is contended by the appellant that the CESTAT while deciding the matter ignored the fact that decision of the High Court of Gujarat in the case of Indsur Global Ltd1 has been stayed by the Apex Court and hence the judgment is in jeopardy and cannot form the ratio decided.
12. In Indsur Global Ltd’s case(1 supra) the Gujarat High Court considered sub-Rule (3A) of Rule 8 of the Central Excise Rules, 2002, which provided that in case of an assessee who has defaulted in payment of duty beyond 30 days from the due date, he 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; and 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.
The Gujarat High Court declared that portion of sub-Rule (3A) of Rule 8, which requires a defaulter to clear the finished products on payment of excise duty without availing the Cenvat Credit as unreasonable and violative of Article 14 of the Constitution of India holding that it amounts to a serious restriction on the assessee’s fundamental right to carry on trade or business of his choice which is guaranteed under Article 19(1)(g) of the Constitution of India.
13. It held:
“30. …the reasons for non-payment of excise duty can be manifold and not necessarily in all case have to be willful default by an assessee despite availability of funds. Excise audit may remain unpaid due to economic reasons, due to slowness in the business or due to financial crunch temporarily 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 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 payments 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 and is therefore, further saddled with the burden of paying such duty in cash without availing Cenvat credit. This rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied.
31. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing Cenvat credit of the duty already paid and thereby suspends, if not withdraws, his right to take credit of the 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…..
34. By no stretch of imagination, 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 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 to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail.”
14. No doubt, the decision of the Gujarat High Court in Indsur Global Ltd’s case(1 supra) was challenged in the Supreme Court by the Union of India and the Supreme Court in SLP(C) No.16523 of 2015 granted stay of the same.
15. Merely because the Hon’ble Supreme Court granted stay of the said order of the Gujarat High Court, it is not open to the appellant herein to contend that the ratio of the Gujarat High Court ought not to be followed by this Court.
16. In the Government of Andhra Pradesh and others vs. P. Gautam Kumar and others2, a Division Bench of this Court presided over by Hon’ble Sri Justice G. Raghuram and one of us (MSR,J) considered the effect of grant of an interim order by the Supreme Court. After referring to the decisions of the Supreme Court in Kishor Kirtilal Mehta and others vs. Lilavati Kirtilal Mehta Medical Trust and others3 and State of Assam vs. Barak Upatyaka D.U. Karmachari Sanstha4 laid down the following principles :
“Para No.63. …. …
(i) mere grant of stay by the Supreme Court in an appeal would not per se require the High Court, in the matter pending before it to draw inferences on merits (of the judgment appealed), from the fact that a stay was granted;
(ii) the High Court in the above circumstances must decide the matter on merits uninfluenced by the fact that an interim stay was granted by the Supreme Court;
(iii) a precedent is the principle contained in a judicial decision, which forms the authoritative and binding element termed as the ratio decidendi. An interim order, which neither finally nor conclusively decides an issue, nor spells out reasons for the interim order, constitutes no precedent and affords no guidance to the lower court, on the further course of adjudication; and
(iv) even where reasons are assigned (by the Supreme Court) in support of such non-final interim order containing prima facie findings, these are only tentative. Interim directions issued on the basis of such prima facie findings are temporary arrangements to preserve the status quo till the matter is finally decided, to ensure that the matter does not become either infructuous or fait accompli before the final hearing.”
17. It is also not in dispute that the judgment of the Gujarat High Court in Indsur Global’s case(1 supra) had been followed by the Delhi, Madras, Punjab & Haryana High Courts.
18. In the instant case, admittedly the assessee had already paid as duty even before the audit declared amounts as payable. Rule 8(3A) applies to cases where the assessee had defaulted in payment of excise duty beyond 30 days from the due date. So, the said rule cannot apply to the instant case and as rightly held by the CESTAT, the said Rule does not apply to every case where in the department, during the scrutiny of returns, during audit or during investigation finds any additional amount payable as duty of excise. Such demands would be recoverable by issuing a notice under Section 11A of the Act and would be covered under Rule 8(3A).
19. The Tribunal has given cogent reasons for its finding that the assessee’s case is a case of demand under Section 11A and is not covered by Rule 8(3A) and the Revenue was not correct in denying utilization of Cenvat Credit to the assessee by applying the said sub-rule.
20. In our opinion, the Tribunal rightly set aside the penalty imposed on the respondent and also the demand imposed on the respondent under Rule 8(3A).
21. We also are of the opinion that no substantial question of law arises for consideration in this Appeal.
22. Accordingly, the Appeal is dismissed. No order as to costs.
23. Pending miscellaneous petitions, if any, in this Writ Petition shall stand closed.
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