Reil Electricals India Ltd. vs Member of C.B.E. and C

Chitra Venkataraman, J.—The petitioner herein is the manufacturer of automotive electrical items having its manufacturing unit in

Puducherry. By proceedings dated 10-11-2008, the Superintendent of Central Excise informed the petitioner that, the electronic returns filed by

the petitioner showed that the CENVAT credit availed appeared high when compared to the utilisation, hence, the petitioner was directed to

produce documents relating to the CENVAT credit availed from the months January, 2008 to October, 2009 along with the statement for further

verification. The petitioner filed a reply on 4-2-2009 wherein it admitted that -on review of records and registers, it was found that the petitioner

had availed CENVAT credit in respect of various inputs. The same was not correctly taken into account on the basis of input, invoice, which

resulted in short payment of excise duty from July, 2008 onwards. The petitioner furnished a chart showing the excess/short CENVAT credit

taken between the months of May, 2008 and December, 2008 (excluding April) along with the details of correct credit due based on the input

invoices and the credit taken. Admitting the liability on the short payment of duty, the petitioner remitted a sum of Rs. 86,75,640.00 along with

interest at Rs. 3,18,191.00. The petitioner further stated that since they had paid duty and interest, the short payment together with interest be

treated as duty paid and the omission regularised as per the provision of Section 11A(2B) of Central Excise Act, 1944. However, thereafter, the

respondents called upon the petitioner to appear for an enquiry. Accordingly, the Chief Executive Officer of the petitioner company appeared

before the Superintendent of Central Excise on 16-2-2009, wherein he stated that the person in charge of the Central Excise accounts in their

company had done this mistake without the Knowledge of the company management. Hence, admitting the said mistake, they had paid the excess

credit taken along with interest. It is further stated that the person who was in charge of the accounts had also quit the job without giving any

intimation. Admittedly, the person, who was in-charge of Factory accounts viz., B. Gnanasekaran deposed before the Superintendent of Central

Excise on 4-3-2009, wherein he pointed out that the ER-1 returns end Central Excise documents were prepared with the Knowledge of the Chief

Executive Officer; that he had signed the ER-1 returns and other correspondences and submitted it to the Central Excise Department. He further

admitted that all the correspondences received from the Central Excise Department were brought to the knowledge of Chief Executive Officer and

under his guidance, replies were sent to the Central Excise Department. To a specific question as to why the petitioner had not responded

immediately to the notice dated 10-11-2008, the said person submitted that he could not submit, the input invoices due to the reason that he was

busy with other prior commitments and that was brought to the knowledge of Chief Executive Officer. In answering to question No. 15, as to the

excess credit availed, the said witness stated that the excess credit amount taken in CENVAT credit account was knowingly taken to avoid

payment of duty at the time of clearance and the Same was: done with the knowledge of the company management. He reiterated that the excess

amount was taken deliberately as instructed by the management and this was known to Chief Executive Officer too. He further answered that it

was done with an intention to pay the amount along with interest at a later date, before the close of the accounting year.

Subsequent to the examination of the said person, the statement of Chief Executive Officer was recorded on 6-3-2009, wherein he pointed out

as follows:

...I am in-charge of the Factory and also an authorised person to sign the documents to be submitted to Central Excise Department. On showing

the ER-1 Returns, for the months of July 2008 to December 2008, 1 admit that it was signed by Shri. B. Gnasnasekaran who was working in M/s.

Remy Electricals Limited as Finance Manager and he was authorised person to sign the ER-1 returns submitted to the Central Excise Department

and for having seen the ER-1 returns signed by B. Gnanasekarn, I appended my signature. For the specific question as to why the excess

CENVAT credit amount taken, I state that it was availed for the reason that during the months July, 2008 to December, 2008 there was no

sufficient balance in CENVAT Credit account for the payment duty on the goods removed, which we have paid at a later date along with

interest....

In the background of the said facts, proceedings now initiated has to be noted. It is seen that on 20-11-2006, the Commissioner of Central

Excise issued a circular seeking comments on deterrent provisions to discourage the problem of planned and deliberate non-compliance. Based on

the above circular a notification was issued in Notification No. 32/2006, dated 30th, December 2006. The notification contains the withdrawal and

imposition of certain restrictions as regards the payment of duty for utilisation of CENVAT credit, and availing the facility of monthly payment of

duties. To provide sufficient safeguard against the misuse, it was contemplated that the proposal for withdrawal of the facilities would be forwarded

by the jurisdictional Commissioner or Additional Director General (CEI) to the Chief Commissioner or Director General (CEI). The Zonal Chief

Commissioner/Director General (CEI) will examine the proposal after giving an opportunity to the assessee to present his case. After due

consideration of the evidence on record, and the submissions made by the assessee, the CC/DG will forward his recommendations to the Member

(Excise). His recommendations will, inter alia, specify the facilities that may be withdrawn and the period of withdrawal of the facility. The final

decision in this regard will be taken by the Member (Excise), CBEC, after due consideration of the facts and circumstances of the case. The order

of such withdrawal will be administrative in nature, and therefore, no appeal remedy will be available to the tax defaulter. The above mentioned

measures were brought into force with effect from 1-1-2007. A reading of the Notification No. 32/2006 shows that where a manufacturer, first

stage or second stage dealer or an exporter including a merchant exporter is prime facie found to be knowingly involved in any of the following:

(a) removal of goods without the cover of an invoice end without payment of duty;

(b) removal of goods without declaring the correct value for payment for duty, where a portion of sale price, in excess of invoice price, is received

by him or on his behalf but not accounted for in the books of account;

(c) taking of CENVAT credit without the receipt of goods specified in the document based on which the said credit has been taken;

(d) taking of CENVAT Credit on invoices or other documents which a person has reasons to believe as not genuine;

(e) issue of excise duty invoice without delivery of goods specified in the said invoice;

(f) claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine, an

officer authorized by the Board may order for withdrawal of facilities or impose certain restrictions as specified in para 2 of this Notification,

the respondents are at liberty to impose restrictions wherein the facility of monthly payment of duties may be withdrawn and the assessee shall be

required to pay excise duty for each consignment at the time of removal of goods; further, where a person is found to be knowingly involved in

committing any one or more type of offences as specified in para 1 for the second time or subsequently, every removal of goods from his factory

may be ordered to be under an invoice which shall, be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise

before the said goods are removed from the factory or warehouse.

In the context of the said administrative instructions, proceedings were initiated against the petitioner which ultimately culminated in the order

passed by the Revenue on 4-1-2010. The order referred to the preliminary scrutiny as to the quantum of duty paid as against the CENVAT credit

taken by the assessee. The Superintendent of Central Excise called upon the petitioner to furnish the documents pertaining to the claim. The

petitioner, however, did not furnish the input invoices. Subsequently, the petitioner informed the Superintendent of Central Excise as to the excess

availing of the credit in the month of July, 2008 and September to December, 2009. Thereafter, they deposited the amount with interest. In the

background of these facts, the removal of goods were without, a power of an invoice and without, payment of duty, hence, constituted an offence

under Clause (a) of para 1 of the Notification No. 32 of 2006 dated 30-12-2006. The Chief Commissioner recommended imposition of certain

restrictions. The order viewed that the assessee had willfully indulged is evasion of duly. Referring to the statement of the Senior Manager

(Finance), the Commissioner felt that the imposition of restrictions under the Notification is an administrative measure to discourage errant

tendencies to evade duty by dubious means on the view that the assessee knowingly removed excisable goods without payment of duty. Hence,

the order was passed directing the petitioner to pay excise duty for each consignment at the time of removal of the goods with effect from 11-1-

2000 to 30-4-2010; the payment of excise duty by utilisation of CENVAT credit as provided under Rule 3(4) of the Cenvat Credit Rules, 2004

was ordered to be stopped with effect from 11-1-2010 to 30-4-2010; that the petitioner was directed to pay the excise duty without utilising

Cenvat credit. The petitioner was, however, permitted to take the Cenvat credit on goods received at the respective factories during this period,

which can be utilised for payment of duty on goods, cleared from the respective factories after the period specified above. The petitioner was

directed to intimate the receipt of principal inputs in the factory on which CENVAT credit has or has not been taken and that the same should be

available for verification and the said restriction was applicable from 11-1-2010 to 31-3-2010. The order was passed without prejudice, to any

action which could be taken against the assessee under this law or any other law for the time being in force.

Learned Counsel for the petitioner pointed out that immediately after payment of the duty, the petitioner moved the Settlement Commission by

way of petition on 12-1-2009. In the light of the petition thus filed before the Settlement Commission, the petitioner contends that the question of

imposition of any restrictions as regards the availing of the CENVAT credit or payment of duty does not arise. In any event, there was no violation

committed by the petitioner to bring the payment of duty under the restrictions laid down in Notification No. 32 of 2006. Learned Counsel for the

petitioner pointed out that the case, of the petitioner does not fall under any of the clauses enumerated in the Notification No. 32 of 2006 and there

are no grounds to bring the case of the petitioner under the enumerated clauses of the Notification to impose restriction on the payment of duty and

the availing of CENVAT Credit. He further pointed out that no motive could be attributed to the petitioner herein and it was only on account of

one B. Gnanasekaran, who was in charge of the maintenance of accounts and filing of returns that the mistake had occurred. In the circumstances,

the order passed imposing restrictions is arbitrary, apart from harsh and disproportionate. Considering the conduct of the petitioner, the order has

to be set aside, learned Counsel for the petitioner pointed out to the recommendation of the Commissioner in favour of the petitioner which had

been ignored while passing the order. In the circumstances, he seeks to quash the order of the first respondent dated 4-1-2010.

Per contra, learned Standing Counsel appearing for the Central Excise Board, apart from reiterating the stand taken in the counter affidavit,

pointed out to the notification and circular issued explaining the background under which the notification came to be made. He pointed out that

when the goods had been removed admittedly without any payment of duty and when there was no payment of duty the restrictions imposed

directing the petitioner to pay the duty for each consignment at the time of removal of good was rightly made and no exception could be taken, to

the order passed. The procedure contemplated under the notification had been fully complied with and on the admitted fact that, with the

knowledge of the petitioner, the goods had been removed without payment of duty and consciously claimed CENVAT credit, which it is not

otherwise entitled to, the belated payment of duty with interest, however, did not absolve the petitioner of the conscious violation committed,

rightly, in the interest of Revenue, the impugned order has been passed.

I agree with the submissions of the learned Standing Counsel appearing for the respondents, Notification No. 32/06 imposes restrictions on the

facilities as regards payment of duty when the violations as regards removal of goods without payment of duty is done consciously. The

Notification, imposes restrictions on the payment of duty as well as on the availing of CENVAT credit on the stated circumstances of violation.

Such restrictions are imposed keeping in mind the need to protect the interest of the Revenue as well as to have a check an the breach of law

consciously committed by an assessee, leading to evasion of duty; that restrictions imposed as to the payment of duty and availing of CENVAT

credit would bring an erring assessee to comply with the provisions in accordance with law. The restrictions imposed are only for a restricted

period of time. Given the nature of restrictions thus imposed, that too on a satisfaction of the conduct of the assessee, knowingly committed the

violation, rightly, in the case on hand, the respondents had passed the impugned order. It must be noted that such restrictions are necessary to

bring the erring assessee on the correct rails, so that there is a compulsion on statutory compliance at least in the future. It is further seen that to

avoid any arbitrary exercise of authority in imposing restrictions, the Board had laid down, broad outline end the circumstances which warrant

imposition of restriction. A reading of various circumstances narrated warranting imposition of restrictions clearly shows that these measures are

aimed at preventing duty evasion arising on account of removal of goods without payment of duty and availing of CENVAT credit which otherwise

is not justifiable.

Considering the fact that the petitioner herein availed CENVAT credit and there was removal of goods without payment of duty, on the

admitted lapse, rightly, the restrictions were imposed. The mere facts of payment of duty with interest does not absolve or cleanse the petitioner of

the violations committed by the petitioner. Hence, on the substantiated fact, that the petitioner had knowingly committed this violation as spoken to

in paragraph 1 of the Notification, imposing the restrictions on the payment of duty availing of CENVAT credit and that too for a limited period by

respondents cannot be viewed be an arbitrary exercise. Given the fact that the evidence on record shows that the petitioner had illegally availed the

CENVAT credit facility and the statement of the Chief Executive Officer recorded on 6-3-2009 clearly establishing the fact that during December,

2008, there was no sufficient balance in CENVAT credit for payment of duty on the goods removed; that they had paid the duty only subsequently

with interest, that too when confronted by a scrutiny, thus clearly show a conscious attempt to gain an advantage which otherwise is not permissible

under law. Hence, in the context of the evidence of B. Gnanasekaran and subsequent statement of CEO, Bajpai, it is difficult to accept the

statement of Bajpai that when the petitioner had made the differential duty with interest, they should be exonerated from the consequences of

violation. In the circumstances, I have no hesitation in rejecting the plea of the petitioner, thereby dismissing the writ petition. It is pointed out by the

learned Counsel for the petitioner that without the copies of the Commissioner''s recommendation given order have been passed. If the petitioner

has any such grievance, it is open for them to approach the Central Excise Board for necessary redressal including the review on the matter. If and

when any such petition is filed, it is open to the Board to pass orders, as they deem fit.

In result, the writ petition is dismissed. No costs. Consequently, connected MP is also dismissed.