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OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, AHMEDABAN

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AMBAWADI, MMEDABAD — 380 015.

%Mt: F. NO. V.62/15-19/ADC/Zedex/0A-1/2013

311th Date of Order : 18.09.2013

twit *1* *I" Fart Date of Issue : 19.09.2013

C4777" 97ftff / Passed by: Shri Sameer Chitkara, ADDITIONAL COMMISSIONER *******************************************************************

70- raw #./Order-In-Original No.: 08/ADDITIONAL COMMISSIONER/2013 ****************************************************************

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This copy is granted free of charge for private use of the person(s) to whom it is sent.

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Any person deeming himself aggrieved by this Order may appeal against this order in Form E.A.1 to Commissioner (Appeals), Central Excise, Central Excise Bhavan, Near Government Polytechnic, Ambawadi, Ahmedabad -15 within sixty days from

date of its communication. The appeal should bear a court fee stamp of Rs.2.00/- only.

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The Appeal should be filed in form No. E.A.-1 in duplicate. It should be filed by the appellants in accordance with provisions of Rule 3 of the Central Excise (Appeals) Rules, 2001. It shall be accompanied with the following:

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Copy of the aforesaid appeal.

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Copies of the Decision (one of which at least shall be certified copy of the order appealed against) or copy of the said Order bearing a court fee stamp of Rs.2.00/-.

/Reference : Cer3lt itJoii tb7.1t.

Show Cause Notice. F.NO. V.62/15 - 19/ADC/Zedex/OA -I/2013 dated 31.05.2013 issued to M/s Zedex Clothing Pvt. Ltd., 132/2, Balaji Estate, Isanpur-Narol Highway, Behind Moni Hotel, Ahmedabad-382443.

3 F.No.V.62/15-19/ADC/Zedex/OA-l/2013

BRIEF FACTS OF THE CASE:

1. M/s Zedex Clothing Pvt Ltd, situated at 132/2, Balaji Estate, Isanpur

Narol Highway, Behind Moni Hotel, Isanpur Ahmedabad, Gujarat-382443 [for the

sake of brevity here-in-after referred to as "ZCPL] is a manufacturer of excisable

goods "Trousers" under Chapter Heading No. 62033200 of the First Schedule to the

Central Excise Tariff Act, 1985 for which they hold ECC No. AAACZ2046EEM001.

ZCPL is paying duty of central excise and availing CENVAT credit on Capital Goods

and Inputs under CENVAT Credit Rules, 2004.

2. On scrutiny of ER-1 for the month of April-2012, it was noticed that ZCPL

failed to pay duty of excise within stipulated period for which SCN had been issued by

Range Superintendent vide F.No. AR-V/DIV-IV/Zedex/2012-13 dated 29.04.2013.

3. On scrutiny of ER-1 Returns for the month of May-2012 to January-2013 it

was noticed that ZCPL failed to pay duty of excise, as shown in Annexure-A, within the

stipulated period and in a manner as required under Rule 8 (1) & 8 (3)(A) of the Central

Excise Rules, 2002. Since the outstanding dues were paid by ZCPL beyond 30 days by

utilizing cenvat credit and also ZCPL failed to submit mandatory ER-1 Returns for the

said period within stipulated time as provided in Rule 12 of Central Excise Rules, 2002,

ZCPL appeared to have contravened the provisions of Rule 8 and Rule 12 of Central

Excise Rules, 2002.

4. Whereas, a statement of Shri Sanjay B. Gohel, Managing Director of M/s

Zedex Clothing Pvt. Ltd., was recorded before Range Superintendent under Section 14

of Central Excise Act, 1944 on 29.05.2013. wherein he inter alia stated that:-

4.1 the company exists since 2003 and is registered with Central Excise department

4.2 they were aware of all the provisions of Rule 8 of Central Excise Rules, 2002

4.3 he agreed that they have not filed the monthly returns for the period May-12 to

Oct.-12 within stipulated time limit.

4.4 he agreed that they have not paid the Central Excise Duty during the period from

May-12 to Jan-13 within the stipulate time period and there was a default of payment

beyond 30 days during said period for each month.

5. The provisions of Rule 12 of Central Excise Rules, 2002 are reproduced below:-

Filing of Return : Every assessee shall submit to the Superintendent of Central

Excise a monthly return in the form specified by notification by the Board, of

production and removal of goods and other relevant particulars, within ten days after

the close of the month to which the return relates

In the instant case, the assessee has continuously filed the returns after stipulated time period,

the details of which are as per Annexure A. The Show Cause notices in this regard have

already been issued in this regard through ACES System.

6. Further, Rule 8 [1] of Central Excise Rules, 2002 reads as under:-

'The duty on the goods removed from the factory or the warehouse during a month

shall be paid by the 5th day of the following month."

The assessee has continuously failed to pay the Central Excise Duty within stipulated time

limit and even failed to pay the duty within thirty days from due date of 5 th day of following month for

a given month. The details of defaulted payment are as given in Annexure A.

7 Further, sub-rule (3) (A) of Rule 8 of Central Excise rules, 2002 is reproduced

below:

"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 gays 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. "

The assessee has continuously failed to pay the Central Excise duty within stipulated time

limit and even failed to pay the duty within thirty days from due date of 5 th day of following month for

a given month. They have also utilized cenvat credit for payment of central excise duty paid after

30 days period and thereby contravened the provisions of Rule 8(3) (A) ibid. The details of

defaulted payment are as given in Annexure A.

8. Thus, from Annexure-A, it is clear that ZCPL has deposited duty of excise beyond

thirty days from the due date and ZCPL defaulted in payment of duty of excise for the

month of May-2012 to January-2013. Since, the assessee has defaulted in payment of

duty from the month of April 2012, thus by virtue of Rule 8(3)(A) of the Central Excise

5 F.No.V.62/15-19/ADC/ZedeV0A-1/2013

payment of central excise duty by debit from their account current on consignment wise

basis as required under Rule 8(3)(A) of Central Excise Rules, 2002 for the period May-

2012 to Jan- 2013.

9. It further appeared from Annexure-A that ZCPL had also defaulted in payment of

duty for the month of May-2012 to January-2013 and ZCPL also failed to clear the

excisable goods on payment of duty by debit from their account current on consignment

wise basis during the period from May-2012 to January-2013 as required under Rule 8

of Central Excise Rules, 2002. Therefore such clearances of goods valued at Rs,

11,85,55,815/- as per Annexure-A should be considered as "clearance made without

payment of duty "amounting to Rs. 1,46,51,505/- [CENVAT Rs. 1,42,24,638/- + EC Rs.

2,84,605/- + SHEC Rs. 1,42,262/-] but the assessee had debited Rs. 28,59,665/- from

their CENVAT Credit Account and duty of Rs.1,17,91,840/- paid from PLA Account.

Hence, the amount of central excise duty of Rs. 28,59,665/- paid from their Cenvat

Credit Account is required to be recovered from ZCPL from Account Current as

stipulated under Rule 8 (3)(A) of Central Excise Rules, 2002 read with Section 11A of

the Central Excise Act, 1944.

10. Thus in light of above, it appeared that ZCPL have contravened the following

provisions:

(1) Rule 8(1) of Central Excise Rules, 2002 in as much as they failed to pay duty by due

date for the month of May-2012 to January-2013.

(2) Rule 8(3A) of Central Excise Rules, 2002 in as much as they failed to pay excise

duty from Account Current for each consignment at the time of removal for the period

May-2012 to Jan. 2013. Also during the said period of default, they paid C. Excise duty by

debit from CENVAT Account which was not permissible till the outstanding amount

of duty along with interest was paid.

(3) Rule 12 of Central Excise Rules, 2002 in as much as they failed to file their

ER-1 Return(s) from May- 2012 to January-2013 within prescribed time limit;

11. Thus the Central Excise duty involved in the clearances effected during

the aforementioned period amounting to Rs. 28,59,6651- was required to be recovered

through account current (i.e. PLA) under Rule 8(3A) of the Central Excise Rules,

Cntn+inn 1 1 A of fines rantrn1 Pvrica Art 1Q44 alrmn with interest. Shri

duty. Accordingly, the said assessee was also liable for penal action in terms of

provisions of Rule 25 of CER, 2002 read with Section 11AC of CEA, 1944. Since the

said goods were so cleared by ZCPL without payment of duty in contravention of

provisions of Rule 8 ibid, the same were also liable for confiscation under Rule 25 of

Central Excise Rules, 2002.

12 Therefore, M/s Zedex Clothing Pvt Ltd, situated at 132/2, Balaji

Estate, Isanpur Narol Highway, Behind Moni Hotel, Isanpur Ahmedabad, Gujarat-

382443 was called upon vide impugned show cause notice as to why:-

(i) The goods cleared by them during the aforesaid default period by

payment of duty by utilizing cenvat credit should not be treated as goods cleared

without payment of duty.

(ii) The Central Excise Duty of Rs. 28,59,665/- paid through Cenvat

Account should not be demanded and recovered from them from Account Current

under rule 8 (3A) ibid read with Section 11A of the Central Excise Act 1944.

(iii) Interest on consignment basis clearances during defaulted

payment of duty of excise for the month from May -2012 to January -2013

should not be recovered from them under Rule 8 (3A) ibid read with Section 11 AA of

the Central Excise Act, 1944.

(iv) Penalty should not be imposed upon them under Rule 25 of the

Central Excise Rules, 2002 read with Section 11AC of CEA, 1944.

(v) Goods valued at Rs. 11,85,55,815/- (Rupees Eleven Crores Eighty Five Lakhs Fifty Five Thousand Eight Hundred and Fifteen only) as per

column No. 5 of Annexure-A cleared by them in contravention of provisions

of CER 2002, should not be held liable for confiscation under Rule 25 of CER 2002.

DEFENSE SUBMISSIONS:

13 M/s ZCPL submitted their written submission dated 10/9/2013, wherein they

denied that the duty of excise paid by them through Cenvat account could not be

considered as payment of duty and that they were liable to penal action as proposed in

the subject notice. It was submitted that they were registered manufacturer of goods

falling under Chapter 62 of the first schedule to the Central Excise Tariff Act, 1985 and

the said registration was obtained by them on 28.03.2011. The said registration was

surrendered by them under their letter dated 02.05.2013 (received by Division on

07.05.2013 and the Inspector of Central Excise, Range V, Division IV, Ahmedabad-I, on

7 F.No.V.62/15-19/ADC/Zedex/0A-I/2013

both through current account and the Cenvat account.

14. They further submitted that the Superintendent of Central Excise recorded the

statement of their Director on 29.05.2013, under Section 14 of the said Act. In the said

statement the facts were admitted by their director; that the Cenvat credit on input

service amounting to Rs. 25,32,734/ was taken during the month of March and April,

2013 and as the said Cenvat credit could not have been utilized due to the exemption

granted to their product from 01.03.2013 and accordingly, the said amount was utilized

for payment of duty of excise on the goods cleared by them, as they did not have any

option to utilize the said Cenvat credit amount, on account of goods getting exempted.

15. They referred and to relied on the judgment of Hon'ble Apex Court in the case of

Collector v. Dai !chi Karkaria Ltd. reported in 1999 (112) ELT_353 (S.C.). In the said

case, the Hon'ble Apex Court has held as follows :-

"17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for

the excise duty paid on raw material to be used by him in the production of an excisable

product immediately it makes the requisite declaration and obtains an

acknowledgement thereof. It is entitled to use the credit at any time thereafter when

making payment of excise duty on the excisable product. There is no provision in the

Rules which provides for a reversal of the credit by the excise authorities except where

it has been illegally or irregularly taken, in which event it stands cancelled or, if utilized,

has to be paid for. We are here really concerned with credit that has been validly taken,

and its benefit is available to the manufacturer without any limitation in time or otherwise

unless the manufacturer itself chooses not to use the raw material in its excisable

product. The credit is, therefore, indefeasible. It should also be noted that there is no co-

relation of the raw material and the final product; that is to say, it is not as if credit can

be taken only on a final product that is manufactured out of the particular raw material to

which the credit is related. The credit may be taken against the excise duty on a final

product manufactured on the very day that it becomes available."

The Hon'ble court has held that the right to take credit is indefeasible; that there is no

co-relation between the raw material and the final product. The duty of excise to be paid

by the manufacturer can be paid through any mode provided in the statute. The duty

can be paid either through current account or through the Cenvat credit account. The

payment of duty through Cenvat credit account is also a mode of payment of duty and

as such, any amount paid through the Cenvat account as duty is required to be

considered towards due discharge of duty liability.

16. They also referred and relied on the decision of the Hon'ble Tribunal in the case of

for payment of Central Excise duty - Appellant was required to discharge the duty

liability in cash for the default period but instead the duty was paid when transactions

were duly recorded in statutory records - Loss to the Revenue is only to the extent of

interest for the period from the date of utilising the Cenvat credit till the payment of

entire duty in cash - Appellant liable to pay the interest at applicable rate for this period."

They submitted that applying the ratio of the above decision, in the present case, the

entire amount of duty having been paid by them, the demand of duty again from them

would amount to double taxation. As per the said decision, they are required to pay the

interest at the appropriate rate.

17. The provisions of Rule 8(3A) of the said Rules is reproduced below for reference:

"Rule 8(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."

It is clear from the above provisions that if assessee defaults in payment of duty beyond

30 days from the due date than the assessee shall be required to pay excise duty for

each consignment without utilising the cenvat credit till the date the assessee pays the

due amounts including interest thereon. In view of the clear cut provisions of Rule 8(3A)

of the Central Excise Rules, 2002, it is evident that the assessee cannot utilise the

Cenvat credit for payment of central excise duty. It has to be held that as per the

provisions of Rule 8(3A) the assessee was required to discharge the duty liability in

cash for the default period but instead the duty was paid from RG 23. However, it

cannot be said that no duty was paid when transactions were duly recorded in the

statutory records. The loss to the Revenue is only to the extent of interest for the period

from the date of utilising the cenvat credit till the payment of entire duty in cash. The

assessee is therefore, liable to pay the interest at applicable rate for this period.

18. They also referred and relied on the decision in the case of Solar Chemferts Pvt.

Ltd. v. Commissioner, reported at 2012 (276) ELT 273 (Tribunal), wherein at Para 13,

the Hon'ble Tribunal has held as under:

"13. It is also relevant to note that even the consequence under the Act are that duty will

have to be paid, interest will have to be paid, penalty will have to he paid and goods are

Ihnhin rr nnn Fiona *Inn In fort them= is nnthinn in tho Art which will har navmP.nt of such

9 F.No.V.62/15-19/ADC/Zedex/0A-I/2013

Cenvat credit will not be due discharge of duty. Interest will be payable so long as them

is no proper discharge of duty. This is a consequence from Act but that will follow even

if it is not mentioned in the Rules. That is to say duty paid during the defaulting period

will he proper discharge once the default in payment from PLA for the month of

December, 2006 in this case, is made good and applicable interest is paid. With the

result the only consequence that arises in this case is payment of interest and penalty.

But interest will be payable from the date of each clearance to the date on which the

default is made good that is 20-4-2007. This is so because once the defaulted amount

is paid, thereafter the payment made through Cenvat become proper even if it is paid

before the date on which defaulted amount is paid. So we do not find it necessary to ask

the Appellant to pay duty in cash and take re-credit of equivalent amount debited in

Cenvat credit account earlier.

14. Rule 8(3A) prescribes only consequences mentioned in the Rules. As already

discussed the consequences prescribed are confiscation of goods and penalties under

Rule 25, Rule 26 or Rule 27. The issue as to which penalty will apply has been

examined by the Gujarat High Court in CCE v. Saurashtra Cement Ltd. - 2010 (260)

ELT 71 (Guj.) and it has been decided that penalty under Rule 27 only can be imposed.

15. In view of the position as explained we hold that there is no case for demanding the

duty paid through Cenvat credit to be paid again through cash/PLA. Penalty under Rule

27 will have to be paid. So we order that the Appellant shall pay penalty of Rs. 5000/-

under Rule 27 of the Rules."

Applying the ratio of the above decision, they are not required to pay any amount as

demanded vide the subject notice. They further submitted that the judicial discipline

demands that an order of the higher appellate forum is binding on all the lower

authorities. As such, the above order of the Hon'ble Tribunal is binding on the

adjudicating authority and its due effect is required to be given.

19. It is submitted that the entire exercise is revenue neutral as after payment in cash,

the corresponding credit in the Cenvat account has to be allowed. The unit having

surrendered the registration, such re-credit amount would be admissible as refund. It is

well settled that in case of revenue neutral situation, no demand can be made. The

above views are supported by the decision of the Hon'ble Tribunal in the case of Allianz

Steel Ltd. Vs Commissioner of Central Excise, Indore, reported at 2012 (286) E.L.T. 633

(Tri. - Del.) and in the case of Commissioner of Central Excise, Jullundhur Vs Kochar

Sung Up Acrylic Ltd. reported at 2010 (259) E.L.T. 713 (Tri. - Del.).

• • I- I - 2- • A -.. 2121.1 • •

of duty and not under the category of defaulter under Rule 8 (3A) of the said Rules, as

alleged. Here, they would like to submit that the input service credit was not taken by

them every month. If they had taken the said input service credit, then the said credit

amount could have been utilized by them for the duty payment for the month and the

duty required to be paid in cash would have been reduced to that extent.

21. They submitted that during the period under consideration, they were required to

pay duty of excise amounting to Rs. 1,46,51,505/. Out of the said amount of duty

payable by them, only an amount of Rs.3,26,931/ was debited by them through their

Cenvat account. Thus, out of the total duty payable, they had deposited almost 97.77%

through cash deposit. Thus, no malafide intention on their part can be attributed. It is

also not the case of the department that the goods which were cleared were not

properly accounted for. Thus, there was no intention at any stage on their part to evade

any duty. It was only due to financial crunch and difficulty that the amount of duty

payable could not be deposited in time.

22. They also mentioned that the subject notice proposes to impose penalty on them

under Rule 25 of the said Rules read with section 11 AC of the said Act. It is submitted

that various Courts and Tribunals have consistently held that the penalty should not be

imposed in an ordinary course, unless it can be shown that the appellant had acted

deliberately in defiance of Law and had relied on the decision of the Hon'ble Supreme

Court in case of Hindustan Steel Ltd. Vs. State of State of Orissa reported in AIR 1970

SC (253) (1979 ELT (J402). In the present case, there is nothing on record to suggest

that they had even remotely acted in defiance of law and as such, no penalty is

imposable.

23 In so far as imposition of penalty , under Section 11AC of the Central Excise Act,

1944 read with Rule 25 of the Central Excise Rules, 2002 is concerned, they submitted

that they have discharged the entire differential duty liability, the transactions were duly

accounted for at all stages. There is a built in mechanism for reconciliation of duty

payments by way of assessments. Therefore, it cannot be a case of wilful suppression

with intention to evade duty and as such, no penalty under section 11 AC of the said Act

as proposed in the subject notice is imposable on them. They placed reliance on the

decision in the case of Manipal Springs Ltd. v. Commissioner 2012 (286) ELT 628

(Tribunal). Therefore no penalty under Rule 25 of the Central Excise Rules is attracted

in this case.

24. They also submitted that in the case of Solar Chemferts Pvt. Ltd. v. Commissioner

(Supra), it was held by the Hon'ble Tribunal that incase of Rule 8 (3A) of the said Rules,

the penalty under rule 25 of the said Rules is not imposable and can be imposed only In An .117 a a :A Le.

11 F.No.V.62/15-19/ADC/Zedex/0A-1/2013

25. They stated that the subject notice proposes to confiscate the goods valued at Rs.

11,85,55,815/ cleared by them during the period from May, 2012 to January, 2013

under Rule 25 of the said Rules. The goods having been cleared after due and proper

accounting and on payment of duty leviable thereon, the said goods are not liable for

confiscation.

26. In the aforesaid premises, the duty having been paid through Cenvat account, the

entire exercise being revenue neutral, no further amount is required to be paid by them

as also no penalty is imposable on them.

PERSONAL HEARING:

27 The personal hearing in the matter was fixed on 11/9/2013 and Shri N.K. Tiwari,

consultant appeared for the same and relied upon the written submission dated

10/9/2013 and requested to decide the matter on its basis.

DISCUSSIONS AND FINDINGS:

28 I have gone through the case records and submissions made by M/s. ZCPL. The

issue on hand is with regard to the default of payment of central excise duty by the

prescribed due date by M/s. ZCPL for the period May'2012 to January'2012 and its

consequential penalty and payment of interest .

29 From the facts of the case on records, it is evident that M/s. ZCPL has paid their

duty of excise beyond 30 days of the stipulated date of payment as prescribed under

Rule 8 ibid for each months continuously from April'12 to January'12. The show casuse

notice for such default in the month of April'12 has been issued by the Range

Superintendent being of his competency, whereas the impugned show cause notice

was issued covering the period from May'12 to January'12. I further find from the details

of default in payment of duty available in Annexure-A to the impugned SCN that there

was delay in payment of duty ranging from 67 days to 166 days. Also, the duty was so

paid by utilizing cenvat credit as detailed in said Annexure-A.

30.1 At the outset, I would like to begin with provisions of sub-rule (1), (3) and 3(A) of

said Rule 8 ibid, which read as under:

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 intemet banking and by the 5th day of the following

month, in any other case:

for the period starting with the first day after due date till the date of actual payment of

the outstanding amount

(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.

30.2 Thus, it is evident from the above provisions of Rule 8 ibid that once the

assessee defaults in payment of duty beyond thirty days from the due dates, the

assessee is liable to 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. It is also very much clear that in case of any failure, the

goods cleared shall be deemed to have been cleared without payment of duty and the

assessee is liable to consequences and penalties as provided in the rules.

31 In the instant case, I find that it is un-disputed fact that M/s. ZCPL had

continuously failed to pay the Central Excise duty within stipulated time limit and even

failed to pay the duty within thirty days from due date of 5 th day of following month for a

given month. They have also utilized cenvat credit for payment of central excise duty

paid after 30 days period and thereby contravened the provisions of Rule 8(3) (A) ibid. It

is evident that ZCPL has deposited duty of excise beyond thirty days from the due date

and thus ZCPL has defaulted in payment of duty of excise for the month of May-2012 to

January-2013. Since, they have also defaulted in payment of duty for the month of April

2012, thus by virtue of Rule 8(3)(A) of the Central Excise Rules, 2002, ZCPL was liable

to pay excise duty from Account Current for each consignment at the time of removal of

excisable goods from their factory for the period May-2012 to January-2013. However

M/s ZCPL failed to remove excisable goods on payment of central excise duty by debit

from their account current on consignment wise basis as required under Rule 8(3)(A) of

Central Excise Rules, 2002 for the period May-2012 to Jan- 2013.

32. I further find that ZCPL had also defaulted in payment of duty for the month of

May-2012 to January-2013 and have also failed to clear the excisable goods on

payment of duty by debit from their account current on consignment wise basis during

the period from May-2012 to January-2013 as required under Rule 8 of Central Excise

Rules, 2002. Therefore such clearances of goods valued at Rs, 11,85,55,815/- as per

13 F.No.V.62/15-19/ADC/Zedex/0A-1/2013

Credit Account and duty of Rs.1,17,91,840/- was paid from PLA Account. Hence, the

amount of central excise duty of Rs. 28,59,665/- paid from their Cenvat Credit Account

is required to be recovered from ZCPL from Account Current as stipulated under Rule 8

(3)(A) of Central Excise Rules, 2002 read with Section 11A of the Central Excise Act,

1944.

33. M/s. ZCPL has argued that the Cenvat credit on input service amounting to Rs.

25,32,734/ was taken by them during the month of March and April, 2013 and the said

Cenvat credit could not have been utilized due to the exemption granted to their product

from 01.03.2013. Accordingly, the said amount was utilized for payment of duty of

excise on the goods cleared by them, as they did not have any option to utilize the said

Cenvat credit amount, on account of goods getting exempted. In this regard, I find that

there was no restriction imposed by the department on them with regard to such cenvat

credit on input service and they could have very well availed the same at the relevant

time for payment of the central excise duty payable by them for the relevant month.

Further, it evident from the said Annexure-A that even the duty paid by them in cash for

the period May'12 to January'13 was delayed for more than 30 days for each month.

Thus, even for the sake of argument if it is considered that they had taken such cenvat

credit of input service in due time, there was considerable delay in respect of the duty

ought to be paid by them in cash during the said period. The fact that the cenvat credit

in question availed and utilized by them works out the 2532734/-, they had still made

payment of duty in cash worth Rs. 11791840/- which was considerably delayed beyond

30 days. Thus, argument of such availability of cenvat credit cannot provide any shelter

to M/s. ZCPL against the allegations in the impugned show cause notice.

34. M/s. ZCPL had referred and relied on the judgment of Hon'ble Apex Court in the

case of Collector v. Dai !chi Karkaria Ltd. reported in 1999 (112) ELT_353 (S.C.). In this

regard, I find that the said decision deals with the issue of time of utilization of cenvat

credit and one to one co-relation of input and final product whereas, the present issue

on hand is entirely different. However, I have given my findings on issue of availability

and utilization of cenvat credit by M/s. ZCPL in above para and I do not find it necessary

to reiterate the same here.

35.1 They have also referred and relied on the decision of the Hon'ble Tribunal in the

case of M/s. Solar Chemferts Pvt. Ltd. v. Commissioner, reported at 2012 (276) ELT

273 (Tribunal) and in the case of F. S. Engineers Vs Commissioner of Central Excise,

Ahmedabad-II, reported at 2013 (293) E.L.T. 61 (Tri. - Ahmd.). In this regard, I find that

in case of M/s. Solar Chemferts Pvt. Ltd., the Hon'ble Tribunal has decided issue of

"13. It is also relevant to note that even the consequence under the Act are that duty will

have to be paid, interest will have to be paid, penalty will have to he paid and goods are

liable to confiscation. In fact there is nothing in the Act which will bar payment of such

short paid duty from Cenvat credit. Once the Act and Rule 8(3A) are read together a

harmonious interpretation will be that during the period of default, payment through

Cenvat credit will not be due discharge of duty. Interest will be payable so long as there

is no proper discharge of duty. This is a consequence from Act but that will follow even

if it is not mentioned in the Rules. That is to say duty paid during the defaulting period

will he proper discharge once the default in payment from PLA for the month of

December, 2006 in this case, is made good and applicable interest is paid. With the

result the only consequence that arises in this case is payment of interest and penalty.

But interest will be payable from the date of each clearance to the date on which the

default is made good that is 20-4-2007. This is so because once the defaulted amount

is paid, thereafter the payment made through Cenvat become proper even if it is paid

before the date on which defaulted amount is paid. So we do not find it necessary to ask

the Appellant to pay duty in cash and take re-credit of equivalent amount debited in

Cenvat credit account earlier.

14. Rule 8(3A) prescribes only consequences mentioned in the Rules. As already

discussed the consequences prescribed are confiscation of goods and penalties under

Rule 25, Rule 26 or Rule 27. The issue as to which penalty will apply has been

examined by the Gujarat High Court in CCE v. Saurashtra Cement Ltd. - 2010 (260)

ELT 71 (Gul) and it has been decided that penalty under Rule 27 only can be imposed.

15. In view of the position as explained we hold that there is no case for demanding the

duty paid through Cenvat credit to be paid again through cash/PLA. Penalty under Rule

27 will have to be paid. So we order that the Appellant shall pay penalty of Rs. 5000/-

under Rule 27 of the Rules."

35.2 Thus, it has been held by Hon'ble Tribunal that "duty paid during the defaulting

period will he proper discharge once the default in payment from PLA for the month

of December, 2006 in this case, is made good and applicable interest is paid. With

the result the only consequence that arises in this case is payment of interest and

penalty. But interest will be payable from the date of each clearance to the date on

which the default is made good that is 20-4-2007. This is so because once the

defaulted amount is paid, thereafter the payment made through Cenvat become proper

even if it is paid before the date on which defaulted amount is paid." Thus, it is clear that

as per the said decision, once the payment for defaulted period is made in cash/PLA

along with interest, thereafter the payment of duty made through Cenvat becomes

proper. Whereas in the instant case, there was default in payment of duty for each

15 F.No.V.62/15-19/ADC/Zedex/OA-1/2013

M/s. F.S. Engineers relied upon by M/s. ZCPL is based on the above decision of

Hon'ble Tribunal in case of M/s. Solar Chemferts Pvt. Ltd. being of similar nature, I find

that both the decisions relied upon by M/s. ZCPL are based on entirely different facts

and have no bearing on the present issue.

35.3 The Hon'ble S.C. in the case of CCE, Calcutta Vs Alnoori Tobacco Products

(2004 (170) ELT 135 (SC) has ordered that facts of decisions relied upon have to be

shown to fit factual situation of a given case and without such discussion, reliance could

not be placed on a decision and that circumstantial flexibility, one additional or different

fact may make world of difference between conclusions in two cases.

36 M/s ZCPL relying upon the decisions of the Hon'ble Tribunal in the case of

Allianz Steel Ltd. Vs Commissioner of Central Excise, Indore, reported at 2012 (286)

E.L.T. 633 (Tri. - Del.) and in the case of Commissioner of Central Excise, Jullundhur Vs

Kochar Sung Up Acrylic Ltd. reported at 2010 (259) E.L.T. 713 (Tri. - Del.) has

submitted that the entire exercise is revenue neutral as after payment in cash, the

corresponding credit in the Cenvat account has to be allowed. In this regard, I find that

the theory of neutrality cannot be applied in blanket. Payment of duty by the due date in

the corresponding next month is a benefit offered by the exchequer to the assessee,

however the same is followed by stipulations as provided in the statute and failure to

comply with the same attracts consequences as provided in the statute. Further, I also

find that the Larger Bench in case of M/s. Jay Yushin Ltd. Vs CCE, New Delhi ( 2000

(119) ELT 0718 ( Tri LB) had observed as under:

(a) Revenue neutrality being a question of fact, the same is to be established in facts of each

case and not merely by showing availability of an alternative scheme;

(b) Where the scheme opted for by the assessee is found to have been misused, the existence

of an alternative scheme would not be an acceptable defense.

Thus, from the above, it is evident that the argument of revenue neutrality put forth by

M/s ZCPL does have any strength and bearing on the case on hand.

37. They submitted that it would be seen from a month wise statement of duty payable

from May, 2012 to January, 2013, the period involved in the show cause notice that out

of total duty payable for the month, they had debited the amount of Cenvat credit

available with them and it is only the balance amount, which was not paid by them.

Therefore, according to them, their case falls under the category of short payment of

duty and not under the category of defaulter under Rule 8 (3A) of the said Rules, as

38 In light of the above facts, I am convinced to hold that M/s. ZCPL had

contravened the provisions of Rule 8 in as much as they continuously defaulted in

payment of central excise duty for more than 30 days and they wrongly utilized the

cenvat credit amounting to 28,59,665/- for payment of duty during such default period .

Accordingly, I find that M/s. ZCPL have contravened the following provisions:

(1) Rule 8(1) of Central Excise Rules, 2002 in as much as they failed to pay duty

by due date for the month of May-2012 to January-2013.

(2) Rule 8(3A) of Central Excise Rules, 2002 in as much as they failed to pay

excise duty from Account Current for each consignment at the time of

removal for the period May-2012 to Jan. 2013. Also during the said

period of default, they paid C. Excise duty by debit from CENVAT

Account which was not permissible till the outstanding amount of

duty along with interest was paid.

(3) Rule 12 of Central Excise Rules, 2002 in as much as they failed to file

their ER-1 Return(s) from May- 2012 to January-2013 within

prescribed time limit;

39. Thus the Central Excise duty involved in the clearances effected during

the aforementioned period amounting to Rs. 28,59,665/- is required to be recovered from

them through account current (i.e. PLA) under Rule 8(3A) of the Central Excise

Rules, 2002 read with Section 11A of the Central Excise Act, 1944 along with interest.

Shri Sanjay B. Gohel, M.D. of the assessee in his statement recorded under

Section 14 of CEA, 1944 has categorically admitted that they were aware of all the

provisions of Rule 8 ibid. Thus, it is evident that the aforementioned contraventions on

part of the assessee were so committed knowingly with intent to evade payment of

duty. Accordingly, the said assessee was also liable for penal action in terms of

provisions of Rule 25 of CER, 2002. Since the said goods were so cleared by

ZCPL without payment of duty in contravention of provisions of Rule 8 ibid, the same

were also liable for confiscation under Rule 25 of Central Excise Rules, 2002.

40 My above findings are duly supported by following judicial pronouncements in

respect of the issue on hand:

(i) In case of M/s Weldon Cello Plast Ltd. Vs CCE, Delhi-IV ( 2013(287) ELT 0141 ( Tri

nen / wherein also the case of M/s. Solar Chemferts Pvt. Ltd. relied upon by M/s. ZCPL

17 F.No.V.62/15-19/ADC/Zedex/OA-I/2013

"7.From perusal of above rule, it is clear that this rule has been framed to curb

indiscriminate default by the assessees in payment of duty payable for a particular

month and it seeks to punish default beyond the period of 30 days from the due date by

insisting on payment of duty consignment-wise and without utilizing the Cenvat credit. In

my view for smooth tax administration and avoiding administrative inconveniences strict

interpretation of the provisions of Rule 8(3)(A) is necessary. From this provision it is

clear that if during forfeiture period, the duty due is not paid consignment-wise and

through PLA, the clearances of goods made shall be deemed to have been made

without payment of duty and consequences and penalties as provided in this rule shall

follow. Thus, Rule 8(3)(A) provides a legal fiction according to which failure to pay duty

consignment wise and only through PLA during forfeiture period would be deemed to

be effecting clearances without payment of duty. It is well settled law that a legal fiction

has been taken to its logical conclusion. Since in this case during forfeiture period the

appellant did not pay the duty consignment wise and only through PM, clearances

would be treated having been made without payment of duty and hence the provisions

of Rule 25(1) would be attracted which provides for imposition of penalty for clearance

of the goods in contravention of the provisions of the Rules. The judgement of Hon'ble

High Court ( Commissioner Vs Saurashtra Cement Ltd.) cited by the learned counsel for

the appellant does not discuss the implication of the wordings of Rule 8(3)(A). As

regards non-mention of the specific clause of Rule 25, on going through the show cause

notice, I find that nature of contravention has been specifically mentioned. Therefore,

non mention of exact clause of sub-rule (1) of Rule 25 in the show cause notice would

not vitiate the same. Therefore, I hold that penalty has been correctly imposed under

Rule 25."

(ii) In case of M/s. Akar Ltd. Vs CCE, Vapi ( 2013 (291) ELT 237 ( Tri-Ahd.), the

Hon'ble Tribunal has held as under:

"5.3 It can be seen that w.e.f. 1-6-2006, Rule 8(3A) provided that in the case of

default beyond 30 days, the facilities of monthly payment of duty and utilization of

CENVAT Credit during the period of default was withdrawn without any necessity of any

specific order in this regard by the Assistant Commissioner or the Dy. Commissioner. It

has become the responsibility of the assessee to pay duty consignment-wise from

account current and clear the goods. In the event of failure, the goods were to be

deemed to have been cleared without payment of duty and the consequences and

penalties as provided in the Central Excise Rules were to follow.

6. The decisions cited by Id. Consultant, to submit that the penalty under Rule 27 only is

'observed in that case that Clause 'a' of Rule 25, which refers to removal of excisable

goods in contravention of any of the provisions of Rules, was not applicable since

during the relevant period at the time of removal of the goods, no duty was required to

be paid. However, under Rule existing during the period when default occurred in this

case, once there was a default beyond 30 days, duty was required to be paid in respect

of each consignment by debiting account current and CENVAT amount could not have

been used. Therefore, the facts in the case are clearly distinguishable from the decision

in the case of Saurashtra Cement Ltd. The same principle

would apply to the case of Tejpal Paper Mills also. Further, in the case of Ramson

Rigid PVC Pipes, penalty under Rule 25 was upheld. In the case of Kit ply Industries,

the default occurred because no cheque was dis-honoured which was rectified with

interest. Hence, that decision in not applicable. The facts in this case are entirely

different. On the order hand, I find that there are several decisions, wherein a view has

been taken that penalty under Rule 25 is imposable in contravention of provision of Rule

8(3A) of Rules and the decisions are as under

(i) Siddheswari Industries v. CCE, Ahmedabad - 2010 (259) E.L.T. 144 (Tri.-Ahmd.)

(ii) Parekh Bright Bars (P) Ltd. v. CCE, Bela pur - 2010 (249) E.L.T. 298 (Td.-Mum.)

(iii) Krishna Chemicals v. CCE, Ahmedabad - 2009 (244) E.L.T. 580 (Tri.-Ahmd.)

(iv) Sam Turbo Industries Ltd. v. CCE, Salem - 2006 (200) E.L.T. 87 (Tri.-Chennai)

(v) Sai Packaging Industries v. CCE, Chennai - 2010 (253) E.L.T. 107 (Tri.-Chennai)

(vi) A.R. Metallurgicals (P) Ltd. v. CCE, Chennai - 2011 (263) E.L.T. 411(Tri.-

Chennai)

(vii) CCE v. Gre Shyam & Co. - 2009 (246) E.L.T. 291 (Tri.-Del.)

41. M/s. ZCPL has submitted that during the period under consideration, out of the total

duty payable, they had deposited almost 97.77% through cash deposit. Thus, no

malafide intention on their part can be attributed. It is also not the case of the

department that the goods which were cleared were not properly accounted for. Thus,

there was no intention at any stage on their part to evade any duty. It was only due to

financial crunch and difficulty that the amount of duty payable could not be deposited in

time. In this regard, I tend to rely on the decision of the Principal Bench, CESTAT, New

Delhi in case of CCE, Raipur Vs M/s. Bharat Fabricators (2010 (261) ELT 0670 ( Tri-

Del), wherein even in case of mere default of Rs. 402/-, it was held that " Once process

of law deprives from certain privilege due to break of law, the appellant has to suffer

penalty". Thus, the quantum of default is immaterial when there is non-compliance of

statutory provisions which lead to penal action.

19 F.No.V.62/15-19/ADC/Zedex/0A-1/2013

(286) ELT 628 (Tribunal) has argued that there is nothing on record to suggest that they

had even remotely acted in defiance of law and as such, no penalty is imposable. In this

regard, I have given my exhaustive findings as above which clearly justify the invoking

of penal action against them and I may not like to reiterate the same.

43. M/s. ZCPL has stated that the subject notice proposes to confiscate the goods

valued at Rs. 11,85,55,815/ cleared by them during the period from May, 2012 to

January, 2013 under Rule 25 of the said Rules. The goods having been cleared after

due and proper accounting and on payment of duty leviable thereon, the said goods are

not liable for confiscation. In this regard, as discussed above, the issue is not more res integra and already held by various judicial foras once the goods are cleared in

contraventions of provisions of Rule 8 ibid as discussed above, they are deemed to

have been cleared without payment of duty and are liable for consequences and penalty

as provided in the rules. In the case on hand, it is un-disputed that the goods in question

were so cleared in clear contraventions of provisions of rule 8 ibid and they being so

deemed to have been cleared without payment do duty, they are liable for confiscation

under rule 25 ibid.

44 In the backdrop of my above findings, I pass the following order in the matter:

ORDER

(i) I hold the goods cleared by them during the aforesaid default period by

payment of duty by utilizing cenvat credit as goods cleared without

payment of duty.

(ii). I order to recover the Central Excise Duty of Rs. 28,59,665/- paid

through Cenvat Account from them from Account Current under rule 8

(3A) ibid read with Section 11A of the Central Excise Act 1944.

(iii) I order to recover interest on consignment basis clearances during

defaulted payment of duty of excise for the month from May-2012 to January-2013 from them under Rule 8 (3A) ibid read with Section 11

AA of the Central Excise Act, 1944.

(iv) I impose penalty of Rs. 14,29,833/- (Rupees Fourteen Lakhs Twenty

Nine Thousand Eight Hundred Thirty Three only) upon them under Rule

25 of the Central Excise Rules, 2002 read with Section 11AC(1) (b) of r.rA 1 Odd I theca rnne,relnA

•

<0, (SAMEER CHITKARA)

ADDITIONAL COMMISSIONER CENTRAL EXCISE, AHMEDABAD-I

Date: 18/09/2013

contravention of provisions of CER 2002, are liable for confiscation

under Rule 25 of CER 2002. However, as the said goods were neither

seized nor available for confiscation, I refrain from passing any order

regarding actual confiscation of the goods.

45 In terms of provisions of Section 11AC (1)(c) ibid, where any duty as determined

under sub-section(10) of section 11A and the interest payable thereon under section

11AA in respect of transactions referred to in clause (b) is paid within thirty days of the

date of communication of order of the Central Excise Officer who has determined such

duty, the amount of penalty liable to be paid by such person shall be twenty-five percent

of the duty so determined.

46. Accordingly, M/s Zedex Clothing Pvt Ltd. are given an option to avail the

payment of reduced penalty under clause (c) of Section 11AC of the Central Excise Act,

1944, subject to the condition that the entire amount of duty determined and confirmed

hereinabove along with interest at appropriate rate, as ordered and the 25% of duty

amount as penalty imposed under Section 11AC of CEA, 1944, is paid within the period

of thirty days, of the communication of this order. If the same is not paid within 30 days of

receipt of the order, then the said option will not be available to them and they will be

liable to pay the entire amount of penalty as imposed on them, under Section 11AC (1)(b)

of the Central Excise Act, 1944.

47 The show cause notice issued to M/s. Zedex Clothing Pvt. Ltd., Ahmedabad

vide F. No. V.62/15-19/ADC/Zedex/0A-I/2013 dated 31/5/2013 stands disposed of

in above manner.

F.No. V.62/15-19/ADC/Zedex/0A- I/2013

By RPAD/ Hand Delivery

To, M/s Zedex Clothing Pvt. Ltd. 132/2, Balaji Estate, Isanpur-Narol Highway, Behind Moni Hotel,

Isanpur, Ahmedabad, Gujarat-382443

Copy to:-

1. The Commissioner C.Ex., (Attn.: A.C.CLEsx-LI(Rrti)

21 F.No.V.62/15-19/ADC/Zedex/OA-I/2013

The Superintendent ( Systems), C.Ex., A'bad-I The Guard File.

•