Utilisation of CENVAT Credit of Excise duty of Defaulted period without any wilful avoidance: CESTAT Quashes penalty u/s 11AC of Central Excise Act

Kalp Corporation Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Introduction: The case of Kalp Corporation vs. C.C.E. & S.T. (CESTAT Ahmedabad) revolves around the issue of imposing penalties under Section 11AC of the Central Excise Act, 1944, Rule 25 and Rule 27 of the Central Excise Rules, 2002, and Rule 15(2) of the Cenvat Credit Rules, 2004. The core question addressed by the CESTAT Ahmedabad was whether penalties should be levied when the appellant had delayed the monthly payment of excise duty and subsequently used CENVAT credit for payment. This article provides a detailed analysis of the case and its implications.

Detailed Analysis:

1. Background: The case relates to an appeal by Kalp Corporation, contesting the penalty imposed on them under various provisions for delayed payment of monthly excise duty and the utilization of CENVAT credit for duty payment.

2. The Central Issue: The primary question before the CESTAT Ahmedabad was whether the appellant was liable for penalties under Section 11AC of the Central Excise Act, 1944, Rule 25 and Rule 27 of the Central Excise Rules, 2002, and Rule 15(2) of the Cenvat Credit Rules, 2004 due to their delayed payment of monthly excise duty.

3. Appellant’s Arguments: The learned consultant representing the appellant contended that the delayed payments of excise duty were accompanied by the payment of interest, and there was no intention to evade duty. The appellant never denied their liability and recorded the entire transaction in their books. They emphasized that no malafide intent existed, and therefore, no penalties should be imposed. The consultant also cited the Indsur Global case, where the Hon’ble Gujarat High Court held Rule 8(3)(a) to be ultra vires, allowing the utilization of CENVAT credit for duty payment during the default period.

4. Reiteration of Revenue’s Stand: The learned superintendent (AR) representing the revenue reiterated the findings of the impugned order, supporting the imposition of penalties.

5. CESTAT’s Ruling: Upon careful consideration of the arguments and the case’s facts, the CESTAT reached several significant conclusions:

• The case primarily involved the delayed payment of the appellant’s admitted monthly excise duty liability.
• There was no intent to evade duty, and the proviso to Section 11A, dealing with suppression, fraud, or misdeclaration, was inapplicable.
• Rule 8 did not contain specific provisions for the imposition of penalties but required the payment of interest for delays.
• The utilization of CENVAT credit for duty payment during the default period was in line with the Indsur Global Limited case’s ruling by the Hon’ble Gujarat High Court.
• The penalties under Section 11AC of the Central Excise Act, Rule 25 of the Central Excise Rules, 2002, and Rule 15(2) of the Cenvat Credit Rules, 2004 were not sustainable.

6. Applicable Precedents: The CESTAT relied on various judgments that supported the appellant’s position, emphasizing that penalties should not be imposed when delayed payment is a result of non-evasion and when interest has been duly paid. The judgments provided direct application to the present case.

7. Modified Penalty: While the CESTAT set aside the penalties imposed under Section 11AC, Rule 25, and Rule 15(2), it maintained a penalty of Rs. 60,000 under Rule 27 of the Central Excise Rules, 2002. This penalty was imposed due to the appellant’s belated filing of ER-1 returns, which were supposed to be filed by the 10th of the following month.

Conclusion: The CESTAT Ahmedabad’s decision in the case of Kalp Corporation vs. C.C.E. & S.T. sets a significant precedent. It reaffirms that delayed payment of excise duty, accompanied by the payment of interest and the utilization of CENVAT credit during the default period, does not warrant penalties for evasion. The ruling highlights the importance of considering the intent behind delayed payments and the adequacy of interest payments in assessing the imposition of penalties.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The issue involved in the present case is that whether appellant is liable for penalty under Section 11AC of Central Excise Act, 1944, Rule 25 and Rule 27 of Central Excise Rules, 2002 and Rule 15(2) of Cenvat Credit Rules, 2004 in a case where the appellant have defaulted the monthly payment of duty within the stipulated time period and consequently they have paid subsequently the duty from cenvat credit.

2. Shri P.P. Jadeja, learned Consultant appearing on behalf of the appellant submits that the appellant have admittedly paid the interest wherever there is a delay. He further submits that this is a case of delayed payment of admitted liability of monthly excise duty, therefore, there is no malafide and appellant have never denied the liability and subsequently, paid the duty, therefore, no penalty can be imposed under any of the Section and Rules. He further submits that as regard the utilization of cenvat credit for payment of duty during the default period, the Hon’ble Gujarat High Court in the Indsur Global has held Rule 8(3)(a) ultravirus, whereby it is allowed for the assessee to utilize the cenvat credit for payment of duty during the default period. For this reason also penalty cannot be imposed. He placed reliance on the following judgments:

• 2019 (26) GSTL 478 (Bom) – CCE vapi vs Twenty First Century Wires Rods Ltd.
• 2019 (368) ELT 20 (Bom) – CCE Nasik-II vs Nashil Forge Pvt ltd.
• 2018 (362) ELT A-67 (SC) – UOI vs Indsur Global Ltd.
• 2015 (326) ELT 256 (P & H) Sandley Industries vs UOI
• 2015 (323) ELT 489 (Mad.) – Malladi Drugs & Pharmaceuticals Ltd.
• 2015 (320) ELT 764 (Guj.) Shreeji Surface Coatings Pvt ltd.
• 2014 (310) ELT 833 (Guj.) – Indsur Global Ltd. vs UOI
• Shreeji Plastic Order No. 12057 /2013 dated 15.09.2023 in appeal No. E/10407/2014.

3. Shri R.K. Agarwal, learned Superintendent (AR) appearing on behalf of the revenue reiterates the findings of the impugned order.

4. On careful consideration of the submission made by both the sides and perusal of records we find that this is a simplicitor case of delayed payment of admitted excise duty liability on monthly basis. The appellant have never denied the liability and the entire transaction has been recorded in their books. Goods were cleared under invoices, therefore, it is not a case of avoidance or evasion of excise duty. In this fact the proviso to section 11A has no application as the appellant have never intention to evade the payment of duty. The ingredients provided under proviso to section 11A for invoking suppression, fraud mis-declaration etc. do not exist in this case. As per Rule 8 regarding monthly payment of duty also, there is no specific provision for imposition of penalty. There is only a requirement of payment of interest in case of delay. As regard, the utilization of cenvat credit for payment of duty during default period, the same has been held in favour of the assesseein the Indsur Global Limited case by the Hon’ble Gujarat High Court, according to which the assessee is allowed to utilize the cenvat credit for payment of excise duty even during the default period. The entire penal provision was invoked on the basis that there is a non-payment of excise duty whereas the fact remains the appellant have already paid the major amount from cenvat credit and a small amount from cash and for the delay, interest was also paid. In this position, we find that no penalty in regard to allegation of evasion of duty shall sustain. The judgments relied upon by the appellant have direct application in the facts of the present case. Accordingly, considering those judgments and facts of the present case, we are of the view that the penalties under Section 11AC of the Act, Rule 25 of Central Excise Rules, 2002 and Rule 15(2) of Cenvat Credit Rules, 2004 are not sustainable. Hence the same are set aside. We find that there is lapse on the part of the appellant for delayed payment of duty for which in our view, penalty under Rule 27 is sufficient. We find that there is admitted position that the appellant have been filing ER-1 returns belatedly which appellant supposed to file by 10^th of following month and thereby contravened of provision of Rule 12 of Central Excise 2002. Therefore, for this lapse the appellant is liable to pay the penalty in terms of Rule 27 of Central Excise Rules, 2002. Therefore, the penalty imposed for Rs. 60,000/- under Rule 27 of Central Excise Rules, 2002 is maintained. As a result, the impugned order stand modified to the above extent. The Appeal is partly allowed in above terms.

(Pronounced in the open court on 04. 10.2023)