K.K. Kohli and Brothers P. Ltd. vs Union of India

Rajive Bhalla, J.�The appellant, challenges orders dated 28-10-2004 (Annexure A-9) and 6-7-2011 (Annexure A-12) 2013 (295) E.L.T. 709 (Tri. - Del.)], and 15-3-2013 (Annexure A-14), passed by the Additional Commissioner, Central Excise, Delhi-IV, Faridabad, the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, Court-I, New Delhi and Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, Court-Ill, respectively. The appellant is a manufacturer of processed cotton, man-made and hosiery fabrics and was paying Central Excise Duty after availing deemed credit as per rates fixed under notification issued under Section 11 of the Cenvat Credit Rules. The Deputy Commissioner, Central Excise, Division-V, Faridabad, vide order dated 31-10-2002, ordered forfeiture of the facility of deferred payment of duty on fortnightly basis and directed the appellant to pay Central Excise Duty on consignment basis for a period of two months from the date of communication of the order. During the period of forfeiture i.e. 1-2-2002 to 13-3-2002, the appellant continued to avail deemed credit of basic excise duty and additional excise duty to the tune of Rs. 19,82,917/-. The appellant also utilised the same for payment of duty, in contravention of Rule 8(4) of C.E. (No. 2) Rules, 2001 and Rule 8(4) of the Central Excise Rules, 2002 etc.

The Deputy Commissioner, Central Excise, Division-V, Faridabad, vide order dated 23-9-2002, also ordered for forfeiture of facility of deferred payment of duty on fortnightly basis in accordance with Rule 8 of the Central Excise Rules, 2002 and directed the appellant to pay Central Excise Duty on consignment basis etc. for a period of two months from the date of communication of the said order. The appellant was, therefore, required to pay the entire amount of duty through PLA on daily basis, without utilising the deemed credit during the period of forfeiture i.e. 25-9-2002 to 24-11-2002 but during the period of forfeiture, continued to avail deemed credit of basic and additional excise duty to the tune of Rs. 23,96,731. The appellant also utilised this amount for payment of duty in contravention of Rule 8(4) of the Central Excise Rules, 2002. The appellant also appeared to have made short payment of duty during 25-9-2002 to 24-11-2002.

The appellant was issued two show cause notices, the first dated 5-3-2003, demanding duty of Rs. 19,82,917/- and the second dated 27-5-2003, demanding duty of Rs. 23,96,731/-. The appellant was also called upon to reply, why deemed credit of Rs. 19,82,917/- availed/utilised during February, 2002 to March, 2002 and Rs. 23,96,731/- availed/utilised from 25-9-2002 to 24-11-2002, for payment of basic and additional excise duty may not be disallowed. The appellant was also called upon to show cause as to why interest should not be charged under Section 11AB of the Central Excise Act, 1944 and penalty be not imposed under Rule 25 of the Central Excise No. 20 Rule 2002 and Central Excise Rules, 2002, for contravention of Rule 8. The appellant submitted a joint reply to the two show cause notices, denying any violation etc.

The adjudicating authority rejected the appellant''s contentions, confirmed demand of Rs. 19,82,917/- after disallowing deemed credit for the period February to March, 2002 and Rs. 23,96,731/- for the period 25-9-2002 to 24-11-2002. The authority also imposed a penalty of Rs. 10 lacs under Rule 25 of the Central Excise (No. 2) Rules, 2002 and Central Excise Rules, 2002 for contravention of Rule 8 of the Rules.

Aggrieved by the aforesaid order, the appellant filed an appeal before the Commissioner (Appeals), who set aside these orders. The Revenue, thereafter, filed an appeal before the Customs, Excise and Service Appellate Tribunal, which after considering the matter in its entirety, allowed the appeal by holding that as it is not disputed that there were defaults in payment of duty in respect to several fortnights and it is not disputed that the appellant utilised credit in violation of debarment orders. After holding as above, the Tribunal held that as demand of duty on the ground that there was restriction in the use of credit for two months would lead to payment of double duty, allowed the appellant to adjust credit towards dues at the time of clearance of final products. The Tribunal, however, directed the appellant to pay interest for the period in dispute and after holding that as there was a violation of utilisation of credit contrary to debarment orders issued under the Central Excise Rules restored the penalty but reduced the penalty to Rs. 1 lakh. The appellant thereafter filed an application for rectification by alleging an error in the order. The Tribunal, vide order dated 15-3-2013, dismissed the rectification application.

Counsel for the appellant submits that the impugned order has been passed without considering written submissions filed by the appellant. The learned CESTAT had not adjudicated the legal pleas raised by the appellant nor has it referred to any provision of law or judgment. The learned Tribunal has failed to appreciate budget changes of 2001-02 that deemed credit can be taken by an independent processor only at the time of clearance except in case of goods exported under bonds. The learned CESTAT has failed to take note of the fact that in the case of deemed credit, the amount of credit is one of the ingredients for arriving at the duty payable by the assessee as an integral part of the assessment but in the case of Cenvat credit, duty is first determined and then paid either from the PLA or from the Cenvat credit account.

Counsel for the Revenue submits that a perusal of the impugned order reveals that the appellants accepted their fault. The Tribunal, therefore rightly restored duty and penalty but while doing so has granted credit to the appellant. The Tribunal has also reduced penalty to Rs. 1 lakh. The appeal may, therefore, be dismissed.

We have heard Counsel for the parties and perused the impugned orders.

As referred to in the narrative of facts, the appellant was directed to pay Central Excise Duty on consignment basis by debiting it to the current account for a period of two months i.e. 1-2-2002 to 31-3-2002. A similar order was passed with respect to the period 25-9-2002 to 24-11-2002. The appellant, however, continued to violate this order and, therefore, was issued two show cause notices demanding duty of Rs. 19,82,917/- and Rs. 23,96,731/-. The adjudicating authority rejected the appellant''s contentions and called upon the appellant to pay Rs. 19,82,917/- and Rs. 23,96,731/- by disallowing deemed credit and also called upon the appellant to pay penalty and interest. The impugned order was set aside by the Commissioner (Appeals), Faridabad, but on an appeal filed before the CESTAT, by the Revenue has been set aside by holding as follows:-

"6. We have carefully considered the submissions from both sides and perused the records. It is not disputed that there were defaults in payment of duty in respect of several fortnights leading to issue of orders dated 31-1-2002 and 20-9-2002. It is not disputed that the respondents have utilised the credit in violation of debarment orders issued under the Central Excise Rules. The original authority has only debarred the credit for two months in each case. We find that normally the deemed credit was available at the time of clearance of the final products. In other words, the credit which was deferred by the original authority is deemed to have been restored after two months. Therefore, the demand of duty on the ground that there was restriction in use of the credit for two months would lead to double payment of duty by the respondents. Therefore, we allow the credit to be adjusted towards dues at the time of clearances of final products, we direct the respondents to pay interest for the period of the months in each case. In other words, once the interest is paid, the credit denied shall stand restored and regularised towards duty due at the time of clearance of the products. Since there is clear violation of utilization of credit contrary to the debarment orders issued under the Central Excise Rules, we hold that the respondents is liable to penalty."

A perusal of the aforesaid extract reveals that the appellant did not dispute before the CESTAT that there were defaults in payment of duty in respect of several fortnights and also did not dispute that they utilised credit in violation of debarment orders issued under the Central Excise Rules, namely, orders dated 31-1-2002 and 24-9-2002. Despite these admitted infractions and consequent violation of the rules, the Tribunal was charitable enough to allow credit to be adjusted towards duty at the time of clearance of final products on the premise that it would otherwise lead to the payment of double duty by the appellant. We may not be entirely satisfied with the opinion recorded by the Tribunal but as there is no appeal by the Revenue, affirm the order particularly in view of the admission with respect to defaults recorded in the impugned order. The appellant having admitted his default, there was no reason for the Tribunal to go into the notification, clarifications in the budget etc. or the other provisions, and, therefore, rightly concluded that penalty must necessarily follow as violation of utilisation of credit contrary to debarment orders, is admitted. The Tribunal has even otherwise reduced the penalty to only Rs. 1 lakh. Consequently, finding no merit, the appeal is dismissed.