CA Urvashi Porwal
Brief of the Case
In the case of M/s Jayaswal Neco Ltd. V/s Commissioner of Central Excise it was held by Supreme Court that even during the period when the facility of payment of excise duty in instalments on fortnightly basis is not available and remains suspended, the only obligation for the assessee is to pay the duty on each clearance and not on deferred basis and it can be paid either through account current or Cenvat Credit.
The issue involved in these appeals lies in a narrow compass which pertains to the demand of interest calculated on the dues of excise duty which were allegedly deposited late. The period involved is 19.12.2000 and 18.02.2001, i.e., two months. The only question is as to whether the excise duty was in fact deposited late and therefore interest would be charged.
The appellant is the manufacturer of pig iron and scrap of iron on which he pays excise duty. The Central Excise Rules, at the relevant time, permitted payment of duty every fortnight instead of consignment basis. In this manner on the goods cleared in the first fortnight the duty was payable by 20th of the said month and for the goods cleared during the second fortnight the duty was payable by 5th May of the next month. The Revenue Authorities found that in the months of August, October and November 2000, the appellants had not paid the central excise duty on time.
This led to the passing of an order by the Revenue suspending the facility of clearing goods of paying the duty every fortnight and interest. Instead, the appellant was directed to make the payment of duty on consignment basis for a period of two months.
After the said orders were passed the appellant started paying duties on consignment basis. During this period the appellant paid around Rs.7 crores in cash through account current, i.e., PLA. However, the appellant also had credit in their Cenvat Account. A sum of Rs. 31 lakhs (approximately) was utilized from the Cenvat Account for payment of excise duty in the aforesaid period. The authorities took the view that the appellant could not have utilized the credit from the account. The appellant was asked to pay the said sum in cash and the appellant obliged. Since this payment was made later/belatedly, the Commissioner (Excise) issued the show cause notice as to why the interest at the rate of 24% per annum should not be charged for the belated period. The appellant refuted the aforesaid averment in the show cause notice with the submission that the payment through Cenvat account was also a valid payment. This contention was not accepted by the Commissioner which resulted in Order-in-Original charging
Interest for delayed payment at the rate of 24% p.a. For the concerned period. The reason given by the Commissioner was that since the facility to pay the central excise duty in instalments given to the appellant was withdrawn under sub-rule (e) of Rule 173G of the Central Excise Rules, 1944 for the concerned period, it was not open to the appellant to make use of Cenvat account during this period. As per the Commissioner, the implication of the aforesaid withdrawal of facility was to pay the excise duty for each consignment by debit to the account current, i.e., by cash only.
The appellant assailed the aforesaid order by filing appeal before the Customs Excise and Service Tax Appellate Tribunal (CESTAT). CESTAT has affirmed the order of the Commissioner holding that payment of duty by debiting the Cenvat Credit was not permissible during the said period and therefore it would amount to non-payment of duty. As a consequence, interest was held to be payable till the date duty was actually paid through cash.
Held by Supreme Court of India
The Hon’ble Supreme Court of India stated that Section 11A of the Act permits the Central Excise Officer to recover duty not levied or not paid or short levied or short paid or erroneously refunded. It can be done within one year from the relevant date by serving show cause notice on the person chargeable with the duty. It is not necessary to state in detail the procedure prescribed therein. Section 11AA of the Act provides that where a person chargeable with duty determined under Section 11A fails to pay such duty within three months from the date of such determination, he is liable to pay interest on the delayed period which is at the rate not below 18% and not exceeding 36% p.a. as for the time being fixed by the Central Government by Notification in the Official Gazette.
In the present case, the respondent communicated to the appellant that duty through Cenvat during this period, when facility under Rule 173G was withdrawn, is not permissible. Without demur, the appellant complied with the demand of the respondent by paying this portion of duty also through account current. The respondent now took the position that the custom duty of Rs.31 lakhs was paid belatedly. On this delayed payment, appellant was liable to pay interest @ 24% p.a. Order-in-Original passed by the Commissioner affirming the demand in show cause notice has been confirmed by the Tribunal.
The Hon’ble Court stated that the Tribunal was not correct in observing that merely because the appellant paid the aforesaid portion of duty subsequently in cash, it had accepted the legal position that payment of duty through Cenvat Credit Account was not permissible under the provisions of Rule 173G(1)(e) of the Rules. Merely because the appellant had yielded to the demand of the Revenue to pay that portion of duty also in cash, would not mean that the appellant was precluded from taking a stand that such mode of payment through Cenvat Credit Account even during the period when facility of payment of duty by instalments had been withdrawn, was permissible. It had taken a specific defence in this behalf and, therefore, the Tribunal was required to examine the Matter in the light of the aforesaid Rule.
The Hon’ble Court stated that from the combined reading of Rules 9, 49 and 173G(1) it can be said that focus of these Rules is on the manner in which duty is to be paid, namely, on daily basis or on fortnightly basis. The mode of payment of duty is altogether different aspect.
In sub-para (b) of Rule 173G, a duty has been cast on the manufacturer to maintain an account current with the Commissioner for the purpose of discharging his duty liability by debiting such account current. This sub-rule also provides that duty can be discharged by utilising Cenvat Credit in the manner mentioned in the said sub-rule. Thus, insofar as mode of payment is concerned, it can be through account current or by utilising Cenvat Credit. Both the methods are permissible. The mode of payment of duty through Cenvat Credit is as good as making payment through account current. This Court in Commissioner of Central Excise, Pune v. Dai Ichi Karkaria Limited described credit under the Modvat scheme to be “as good as tax paid”.
The Hon’ble Court further stated that even during the period when the facility of payment of excise duty in instalments on fortnightly basis is not available and remains suspended for a period of two years, the only obligation for the assessee is to pay the duty on each clearance and not on deferred basis. At the same time, insofar as manner of duty is concerned, it can be either through account current or Cenvat Credit.
In this behalf, it also required to emphasize that the Central Government introduced a scheme namely MODVAT Scheme in the Central Excise Law as introduced by a separate Chapter containing Rule 57A to 57(U) from 1986. As per the MODVAT credit scheme introduced by the aforesaid Rules, the manufacture of certain final products which are excisable goods specified in the notification issued by the Government, is allowed credit of any duty to excise paid by him on the input which is used in the manufacture of the final product. The credit of specified duty allowed is to be utilised towards payment of duty excise allowable on the final product whether under the Act or under any other Act as the case may be by the notification issued and subject to such conditions as may be specified.
The Hon’ble Court referred to the decision rendered by Kerala High Court in Thanikkudam Bagawati Mills Limited, Thanikkudam v. The Commissioner of Central Excise, Calicut.
The Hon’ble Court stated that the judgment rendered by the High Court was not challenged and instead to remedy the situation, Rule 8 of the Central Excise Rules, 2002 itself is amended by inserting sub- rule 3A vide Notification No.17/05-C.E. (N.T.) dated 31.03.2005 w.e.f. 01.04.2005. This Rule now specifically provides that in case of default in making payment of duty, the assessee shall be required to pay excise duty for each consignment by debit to the account current and not by utilising Cenvat Credit. This also lends credence to the view in respect of unamended provision that was applicable at the relevant time.
In view of the above, the appeal has been allowed.