- Bookmark
- Share
- CaseIQ
Unirols Airtex v. Assistant Commr. Of C. Ex., Coimbatore
Structured Summary of the Opinion
Factual and Procedural Background
The writ petition challenged an order dated 26 October 2010 of the third respondent detaining goods on the ground of non-payment of excise duty with interest. The petitioner manufactures overhead travelling cleaners and accessories for the textile industry and was required to remit excise duty monthly under the Central Excise Rules (Rule 8). Due to financial difficulty, there was delayed payment of duty during the period stated in the record (the opinion refers to delay during September 2011 to June 2012). The petitioner made belated payments with interest and, in part, utilized eligible Cenvat credit to discharge duty liabilities.
The second respondent verified payments and called upon the petitioner to pay Rs. 53,62,822/- for the relevant period, indicating recovery action under Section 11 of the Central Excise Act, 1944 read with Section 142 of the Customs Act, 1962 if payment was not made. The petitioner contested the demand on the ground that payments made using Cenvat credit should be recognised, relying on the explanation appended to Rule 8(3A) of the Central Excise Rules, 2002 and on a prior order in W.P. No. 19909 of 2011 (Techno Rubber and Plastics). The second respondent maintained that Rule 8(3A) prohibits use of Cenvat credit to pay duty where there is a default beyond the statutory cut-off and therefore did not recognise the payments made by utilising Cenvat credit.
Legal Issues Presented
- Whether the payments made by the petitioner using Cenvat credit in respect of belated excise duty payments should be recognised for the purpose of discharging the duty amount demanded by the second respondent.
- Whether the second respondent failed to consider the explanation appended to Rule 8(3A) of the Central Excise Rules, 2002 when making the demand and detaining the goods.
- Whether Rule 8(3A) and related provisions permit the utilisation of Cenvat credit as a mode of payment for excise duty where the assessee has defaulted beyond the statutory cutoff, and the consequences of any such default (including detention and penalties).
Arguments of the Parties
Petitioner's Arguments
- The petitioner asserted that the entire duty amount was paid with interest before the cut-off date, albeit partly through utilisation of existing Cenvat credit balances.
- The petitioner relied on the Explanation to Rule 8(3A) of the Central Excise Rules, 2002 and on a prior order in Techno Rubber and Plastics (W.P. No. 19909 of 2011, order dated 29 October 2011) to contend that the payment made by utilising Cenvat credit should be recognised.
- The petitioner sought confirmation from the second respondent recognising the payment made using Cenvat credit, relief from further payment of duty and interest, and an order directing the third respondent to release the detained goods.
Respondents' Arguments
- The second respondent (and learned Senior Standing Counsel for Central Excise) contended that the petitioner defaulted in payment beyond the relevant cutoff and that Rule 8(3A) prohibits utilisation of Cenvat credit to discharge duty where such default has occurred.
- According to the respondents, Cenvat credit can be used for payment only after the outstanding amount (including interest) is paid, and therefore payments made by utilising Cenvat credit in the default period could not be recognised against the outstanding liability.
- The respondents maintained that the computation of arrears and the direction to pay the demanded amount (without recognising Cenvat credit usage) were justified by Rule 8(3A) and related provisions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M/s. Techno Rubber and Plastics rep. by its Proprietor v. Customs and Central Excise, Chennai (Order dated 29 October 2011 in W.P. No. 19909 of 2011) | Referred to the Explanation appended to Rule 8(3A) of the Central Excise Rules, 2002; directed the authority (Settlement Commission) to consider the effect of that explanation. | The Court distinguished that order: it held that Techno Rubber and Plastics did not lay down a positive proposition permitting excise duty to be paid beyond the statutory period by utilising Cenvat credit. Instead it only directed reconsideration of the explanation's effect; therefore it was not an authority to permit the use of Cenvat credit in default situations. |
Court's Reasoning and Analysis
The court's analysis proceeded in the following steps, based solely on the material and legal provisions reproduced in the opinion:
- Fact-finding: The court accepted that the petitioner had committed defaults in payment of excise duty, that belated payments were made, that interest was paid for the delayed period, and that part of the payment was made by utilising Cenvat credit (as reflected in the petitioner's worksheet).
- Identification of the legal question: The court framed the central legal question as whether Rule 8(3A) and its Explanation permitted the petitioner to discharge excise duty (after default) by using Cenvat credit and whether the second respondent was obliged to recognise such payments.
- Examination of Rule 8(3A): The court reproduced Rule 8(3A) which provides that where an assessee defaults beyond thirty days from the due date, the assessee shall pay excise duty for each consignment at the time of removal without utilising Cenvat credit until the outstanding amount including interest is paid; failure to pay will lead to deeming goods as cleared without payment and attendant consequences/penalties.
- Interpretation of the Explanation: The Explanation defines 'duty' or 'duty of excise' to include amounts payable under the Cenvat Credit Rules, 2004. The court held that this Explanation clarifies the meaning of 'duty' but does not convert into permission the use of Cenvat credit for payment in default situations. In the court's view, the Explanation does not override the clear prescription in Rule 8(3A) that Cenvat credit must not be utilised until outstanding amounts (including interest) are paid.
- Interaction with Cenvat Credit Rules: The court noted that while sub-rule 4(b) of the Cenvat Credit Rules permits utilisation of Cenvat credit for payment of excise duty on final products in ordinary circumstances, Rule 8(3A) operates notwithstanding anything contained in sub-rule (1) and (4) of Rule 3 of the Cenvat Credit Rules, i.e., the rigour of Rule 8(3A) applies in default situations. Thus, Cenvat credit cannot be used as a matter of right to pay duty where there is a default beyond the cutoff.
- Assessment of the precedent relied upon by petitioner: The court considered the Techno Rubber and Plastics order and concluded that it only directed reconsideration of the effect of the Explanation by the Settlement Commission; it did not hold as a matter of law that excise duty could be paid beyond the statutory period by utilising Cenvat credit. Consequently, that order did not support the petitioner's contention as a binding authority permitting such payments.
- Conclusion drawn from statutory text and legislative intention: Reading the statutory text (Rule 8(3A) and the Explanation) and relevant Cenvat Credit provisions, the court concluded that the legislative intention was to prevent use of Cenvat credit to discharge duty liabilities after default until outstanding amounts and interest were paid in full.
Holding and Implications
Holding: The writ petition is dismissed and the petitioner's challenge failed. The court upheld the second respondent's order directing the petitioner to pay the entire duty amount with interest without utilising Cenvat credit. The detention order by the third respondent was sustained until such payment (without availing Cenvat credit) is made.
Implications:
- Direct effect: The petitioner must pay the full demanded amount (Rs. 53,62,822/- as called for by the second respondent) with interest without setting off or utilising Cenvat credit; until such payment is made (without availing Cenvat credit) the detained goods will not be released.
- On precedent and broader law: The court explicitly stated that the decision did not treat the prior Techno Rubber and Plastics order as establishing a legal proposition permitting post-cutoff payment by utilising Cenvat credit; the opinion is based on statutory interpretation of Rule 8(3A) and the Cenvat rules. The court did not purport to create a novel precedent contrary to the statutory text—it interpreted Rule 8(3A) as barring use of Cenvat credit in default situations.
- Procedural outcome: The writ petition and the connected miscellaneous petition were dismissed/closed. No costs were awarded.
Disposition: In Favour of Department
Citing Reference: Mentioned 1
Case Note:Customs - Detention of goods - Validity of - Rule 8(3A) of Central Excise Rules, 2002 - Present petition filed to challenge order, whereby, Petitioner was called upon for making payment of duty amount with interest - Whether order by Respondent/authority was passed without consideration of provisions to Rule 8(3A) of Rules - Held, Petitioner committed default in payment of excise duty and that Cenvat credit were used for payment of duty amount - Rule 8(3A) states that Cenvat credit cannot be used as matter of right for payment of duty of excise, in case assessee makes default - Therefore, assessee was liable to pay excise duty in accordance with Rules, 2002 with interest for belated period - Respondent was fully correct in directing Petitioner to pay entire duty amount with interest without utilising Cenvat credit - Petition dismissed.
Facts
Petitioner committed default in payment of excise duty and used Cenvat credit for payment of duty amount. Respondent called upon Petitioner for making payment of duty amount with interest. Whether order by Respondent/authority was passed without consideration of provisions to Rule 8(3A) of Central Excise Rules, 2002?
Held
Rule 8(3A) states that Cenvat credit cannot be used as matter of right for payment of duty of excise, in case assessee makes default. Therefore, assessee was liable to pay excise duty in accordance with Rules, 2002 with interest for belated period. Petition dismissed.
ORDER
K.K. Sasidharan, J.
1. This writ petition is directed against the order dated 26 October 2010 on the file of the third respondent detaining the goods on the ground of non-payment of duty amount with interest.
Background facts:
The petitioner is engaged in the manufacture of overhead travelling cleaners and accessories suitable for ring frames used in the textile industry. The petitioner has been remitting the customs duty in accordance with the Central Excise Rules. Under Rule 8 of the Central Excise Rules, the duty on the goods removed from the factory during the month, shall be paid by the Fifth day of the following month. However, due to financial crisis there was some delay in payment of Central Excise duty on monthly basis during the period from September 2011 to June 2012. The belated payment was made with interest for the delayed period. The petitioner utilised the eligible Cenvat credit of duty paid on the inputs and other eligible credits used in the manufacture of final products. However, the respondents failed to give credit to the duty paid through the eligible Cenvat credit and the same reflected in the accounts as non-payment. The second respondent verified the payments made by the petitioner and called upon to pay a sum of Rs. 53,62,822/- for the relevant period, failing which it was indicated that action would be taken for recovery of the amount under Section 11 of the Central Excise Act, 1944 read with Section 142 of the Customs Act, 1962. According to the petitioner, the entire duty amount was paid with interest, of course by using part of the Cenvat credit of duty paid on the inputs and other eligible credits used in the manufacture of final products.
2. It is the grievance of the petitioner that while passing the order, explanation appended to Rule 8(3A) of the Central Excise Rules, 2002 was not considered by the second respondent. The petitioner, therefore, wanted the second respondent to confirm the payment made by using Cenvat credit of duty and to relieve from payment of further duty and interest end a direction to release the goods by the third respondent.
Defence:
3. The second respondent filed a counter affidavit contending that the petitioner failed to discharge the entire duty amount with interest on or before the cut off period. The petitioner also used Cenvat credit for discharging the duty which is not permissible by law. According to the second respondent, Cenvat credit can be used for payment only after the outstanding amount is paid along with interest and therefore, there is no question of recognising the payment made by the petitioner by using Cenvat credit.
Rival Contentions:
4. The learned Senior Counsel for the petitioner contended that the entire amount was paid with interest before the cut off date. However, while paying the duty amount, the petitioner also used the Cenvat credit which was there on its credit. The learned Senior Counsel by placing reliance on explanation to Rule 8(3A) of the Central Excise Rules, 2002 and the judgment in M/s. Techno Rubber and Plastics rep. by its Proprietor v. Customs and Central Excise, Chennai (Order dated 29 October, 2011 in W.P. No. 19909 of 2011) contended that the second respondent omitted to consider the explanation and that was the reason for demanding the entire amount without recognising the payment made by using Cenvat credit. According to the learned Senior Counsel, under similar circumstances, this Court directed the Customs Department to consider the applicability of explanation to Rule 8(3A) of the Central Excise Rules, 2002. The department thereafter accepted the position. The petitioner is similarly situated and as such the payment made partially by using Cenvat credit should be recognised.
5. The learned Senior Standing Counsel for Central Excise justified the computation of arrears made by the second respondent. According to the learned counsel, the petitioner was expected to pay the entire amount of duty without using Cenvat credit. The learned counsel by placing reliance on the Explanation to Rule 8(3A) contended that the Rule is very clear that the assessee would not be permitted to pay duty by making use of Cenvat credit.
Factual Analysis:
6. The petitioner committed default in payment of excise duty. The worksheet produced by the petitioner indicates that the duty was paid belatedly. The petitioner appears to have paid interest on the delayed payment. The worksheet also indicates that the petitioner used Cenvat credit for payment of duty amount.
7. The moot question is whether the petitioner was correct in making use of the Cenvat credit for the purpose of discharging the duty liability.
8. The Central Excise Rules, more precisely, Rules 8 deals with the manner of payment of excise duty. Rule 8(3A) reads thus:
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:
.........................
[(3A) If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of Rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the Cenvat credit 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.
(4) The provisions of Section 11 of the Act shall be applicable for recovery of the duty as assessed under rule 6 and the interest under sub-rule (3) in the same manner as they are applicable for recovery of any duty or other sums payable to the Central Government.
Explanation. - For the purposes of this rule, the expressions 'duty' or 'duty of excise' shall also include the amount payable in terms of the Cenvat Credit Rules, 2004.]
9. The petitioner paid the duty amount partly by utilising Cenvat credit. The petitioner is now placing reliance on the explanation appended to sub-rule (3A) to Rule 8 in support of the contention that payment made by utilising Cenvat credit is a valid payment and the same also should be recognised for the purpose of computing the total amount paid towards excise duty. The petitioner placed reliance on the judgment of this Court dated 29 October, 2011 in W.P. No. 19909 of 2011 in support of the contention that this Court has already arrived at a finding that the payment made by utilizing Cenvat credit should be recognised as a mode of payment of duty.
10. It is true that this Court in Techno Rubber and Plastics was pleased to refer Rule 8(3A) and the explanation appended thereto. The learned Judge found that the Settlement Commission failed to consider the effect of the explanation appended to Rule 8(3A) and therefore, directed the authority to consider the matter afresh. The said judgment is not an authority for the proposition that the excise duty can be paid beyond the statutory period by utilising Cenvat credit. There was no positive finding in the said order. The learned Judge directed the Settlement Commission to consider the effect of explanation appended to Rule 8(3A) of the Central Excise Rules, 2002 and to pass orders accordingly.
11. Rule 8(3A) categorically states that the assessee shall pay excise duty for each consignment at the time of removal, without utilising the Cenvat credit till the assessee pays the outstanding amount including interest thereon. The consequence for non-payment of excise duty is also indicated in the very same section as it provided that in case of failure to pay the amount, it shall be deemed that such goods have been cleared without payment of duty and the consequence of penalties as provided in the rules would follow. Rule 8(3A) does not permit the assessee to pay the excise duty by using the Cenvat credit. The provision restrained the assessee from using Cenvat credit till the entire outstanding amount including interest is paid. The explanation is only for the purpose of making the position clear.
12. There is no question of invoking the Cenvat Credit Rules, 2004 in its entirety except for understanding the meaning of the term 'duty' or 'duty of excise. In fact, the rigour of Section 8 operates notwithstanding anything contained in sub-rule (1) and (4) of Rule 3 of Cenvat Credit Rules. Sub-rule 4(b) of Cenvat Credit Rules permits utilisation 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 under Rule 8(3A) of Central Excise Rules, 2002.
13. The purpose of explanation that the expression 'duty' or 'duty of excise' shall also include the amount payable in terms of the Cenvat Credit Rules, 2004, would not amount to a permission for utilising the Cenvat credit for paying the excise duty. Rule 8(3A) is very specific when it provided that the entire duty should be paid without utilising the Cenvat credit. There is no question of utilising the explanation for the purpose of using the Cenvat credit for paying the outstanding duty amount.
15. The Law is, therefore, clear that the assessee is liable to pay the excise duty in accordance with the Central Excise Rules, 2002 with interest for the belated period and there is no provision for utilising the Cenvat credit for such belated payment.
15. The fact that the Assessing Authority took a different view in Techno Rubber and Plastics after remand would not stand in the way of this Court examining the statutory provisions and arriving at a finding with regard to the legislative intention.
16. The second respondent was fully correct in directing the petitioner to pay the entire duty amount with interest without utilising the Cenvat credit. So long as it is clear that the petitioner has not paid the entire duty amount with interest (without utilising the Cenvat credit), the question of releasing the goods does not arise. Therefore, I do not find any merit in the contention raised by the petitioner. It is open to the petitioner to pay the entire duty amount demanded by the second respondent with interest and in the event of such payment without availing the Cenvat credit, further action should be taken by the third respondent to release the goods forthwith.
Result:
In the upshot, I dismiss the writ petition. Consequently, the connected miscellaneous petition is closed. No costs.
Alert