This Is a Revenue Appeal Filed Against Order-In-Original No. AHM-CEX-003-ADC-048-049-11

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V2(48)10/EA2/Ahd-III/2012

This is a Revenue appeal filed against Order-in-original No. AHM-CEX-003-ADC-048-049-11 dated 21.10.2011 (hereinafter referred to as ‘the impugned order’) passed by Additional Commissioner, Central Excise, Ahmedabad-III (hereinafter referred to as ‘the adjudicating authority’ for the sake of brevity).

2.Briefly stated, the facts of the case are that M/s Gyscoal Alloys Ltd., Ubkhal, Kukarwada Taluka, Vijapur District, Mehsana 382 830 (hereinafter referred to as ‘Gyscoal Alloys’ for the sake of brevity) who are manufacturers of Iron and Steel Products such as S.S. Plates, Angles, Round Bars etc had failed to discharge appropriate Central Excise duty for the period April-2011 to July-2011 within the stipulated period as provided under Rule 8(1) of the Central Excise Rules, 2002 and the default extended beyond a period of 30 days during this period whereby Gyscoal Alloys were required to pay duty consignment-wise forfeiting the benefit of CENVAT credit as per the stipulations under Rule 8(3A) of Central Excise Rules, 2002. Two Show Cause Notices viz. i) F.No.V.72/15-151/Off/OA/2010 dated 12.01.2011 and ii) F.No.V.72/15-152/Off/OA/2010 dated 12.01.2011 were issued to Gyscoal Alloys proposing recovery of CENVAT amounting to `45,99,683/- and `23,14,420/- to be paid in cash under Rule 8 (3A) of the Central Excise Rules, 2002 read with Section 11A of the Central Excise Act, 1944. Penalty was proposed in both the Show Cause Notices to be imposed on Gyscoal Alloys under Rule 25 and Rule 27 of the Central Excise Rules, 2002.In these Show Cause Notices, interest was proposed to be levied under Section 11AB of the Central Excise Act, 1944. Further, in these noticesthe clearance values of `4,46,57,090/- and `2,24,70,100/- were proposed to be considered as pertaining to clearances made without payment of duty under Rule 8(3A) of Central Excise Rules, 2002 and the goods concerned was proposed to be confiscated under Rule 25 of Central Excise Rules, 2002 and since the goods were not available for confiscation, redemption fine was proposed to be imposed in lieu of the same.

3.The Show Cause Notice was adjudicated by issuance of the impugned order wherein Central Excise duty totally amounting to `69,14,103/- has been confirmed to be paid in cash under Rule 8 (3A) of the Central Excise Rules, 2003 read with Section 11A of the Central Excise Act, 1944. The amounts of `69,14,103/- already paid vide Challan dated 04.10.2011 has been appropriated in the impugned order against the confirmed demands. A penalty of `60,000/- has been imposed on Gyscoal Alloys under Rule 25 of the Central Excise Rules, 2002. Demand for payment of interest has been confirmed under Section 11AB of the Central Excise Act, 1944 and the amounts of `4,13,971/- and `5,12,658/- paid by Gyscoal Alloys have been appropriated towards the said confirmed demands for interest.

4.The grounds of appeal filed by Revenue against the impugned order are that Gyscoal Alloys had admittedly contravened provisions of Rule 8 (3A) of the Central Excise Rules, 2002 in as much as they had failed to pay Excise duty for each consignment at the time of removal without utilizing CENVAT credit for the period from 08.3.2010 to 15.3.2010, 5.6.2010 to 11.6.2010 and on 06.7.2010; that the default has not just occurred for one month but has been repeated over six months; that the clearances effected during this period are deemed to have been made without payment of duty attracting the consequences and penalties as provided in these rules. It has been pointed out in the grounds of appeal that wilful action of not paying duty through PLA consignment-wise on regular basis for a continuously involving 35 Invoices clearly proves intent to evade payment of duty which attracts maximum penalty which can be equivalent to duty evaded; that further by paying duty through CENVAT credit and not through PLA, this offence has been further compounded clearly indicating intent to evade provisions of law that attracts maximum penalty; that looking to the duty evaded amounting to `69,14,103/- penalty of `60,000/- imposed under Rule 25 of the Central Excise Rules, 2002 for violation of Rule 8 (3A) of Central Excise Rules, 2002 is very less; that the penalty was required to be equivalent to the amount of duty evaded since clear mens rea is manifested in their conduct. It has further been stated in the grounds of appeal that there is deeming provision in law that these goods will be liable for confiscation and imposition of fine; that the goods cleared by Gyscoal Alloys in violation of the provisions of Rule 8 (3A) ibid were liable to confiscation and as the goods were not available for confiscation, redemption fine ought to have been imposed which has not been done in the impugned order; that the reliance place on the order of Hon’ble Tribunal in the case of M/s Samvid Engineers appears to be premature as the department has already proposed filing an appeal before Hon’ble High Court of Gujarat on the question of reduced penalty under Rule 25 of the Central Excise Rules, 2002. In the grounds of appeal filed by Revenue, reliance has been placed on the decision of Hon’ble High Court of Bombay in the case of M/s Vidushi Wires (P) Ltd Vs UOI reported in 2003 (156) ELT 168 (Bom) where it has been held that “whenever a statute prescribes that a particular act is to be done in a particular manner and also lays down that a failure to comply with the said requirement leads to a specific consequence, it would be difficult to hold that the requirement is not mandatory and specified consequence should not follow”.

5.In the cross-objections filed by Gyscoal Alloys, it has been submitted, inter alia, that on receipt of the Show Cause Notice they had paid up the entire amount along with interest in cash; that the penalty of `60,000/- had been imposed in the facts of the present case and there were no clearances without payment of duty which could attract confiscation and redemption fine in lieu of confiscation; that the proceedings against them for payment of duty in cash were illegal and unwarranted because payment of duty from lawfully availed CENVAT credit is similar to payment of duty in cash as affirmed by the Hon’ble Bombay High Court in the case of Llyods Steel Industries Limited – 2005 (183) ELT 351 (Bom.); Tribunal Larger Bench in the case of Noble Drugs Limited – 2007 (215) ELT 500; Hon’ble Kerala High Court in case of Thanikkudam Bhagwati Mills Ltd. and by the CBEC Circular dated 20.1.1998. It has been further been submitted in the cross-objections that Hon’ble CESTAT has very recently given a decision on the issues raised against them in the matter of Solar Chemicals Pvt. Ltd. – 2012 (276) ECT 273 where it was held that since duty was paid through CENVAT, there was not case for demanding to be paid again through PLA; that the whole situation was in any case revenue neutral because if payment made from PLA is adjusted against the proposed demand as suggested in the Show Cause Notice, then re-credit of the same amount is admissible because the amount was already paid using CENVAT credit; that interest was not leviable in this case as the payment of duty had been discharged through CENVAT consignment-wise at the time of clearance; that it is settled legal position that when goods were not seized and were not available for confiscation, there is no notional confiscation of goods that could be ordered in the adjudication proceedings as held in Manjula Showa Ltd. – 2008 (227) ELT 330and Shivkripa Ispat Pvt. Ltd. – 2009 (253) ELT 623. It has been contended in the cross-objections that the prayer for imposing a higher amount of penalty in the present case is not maintainable in law; that Hon’ble High Court of Gujarat in Commissioner Vs Saurashtra Cement Ltd. – 2010 (260) ELT 71 (Guj.)and Prince Multi Plast Pvt. Ltd. – 2012 (276) ELT 48 (Guj.)have held that penalty under Rule 25 of the Rules (like Section 11AC of the Act) could be imposed only when there was a sustainable case of mala fide and deception against the assessee; that clearance of excisable goods was reflected in their statutory records and clearance of the consignments on payment of duty from CENVAT account during the disputed period was reflected in all their statutory records; that therefore there was no suppression of facts; that penalty could only be imposed under Rule 27 ibid if there was default in payment of duty; that the amount of penalty imposed in the impugned order is an amount higher than that imposable under Rule 27 ibid and so no further penalty can be legally imposed as suggested by Revenue; that in the case of Hindustan Steel Limited reported in 1978 ELT (J159)it has been held by Hon’ble Supreme Court that penalty should not be imposed merely because it was lawful to do so.

6.Personal hearing was held on 26.4.2012. Smt. Shilpa Paresh Dave, Advocate appeared for personal hearing. She stated that the issue involved is only the penalty imposable. She cited the decision of Hon’ble Gujarat High Court in the case of Saurashtra Cement and contended that in such cases only penalty under Rule 27 is imposable. The adjudicating authority has already imposed penalty of `60,000/-. Hence no other penalty is imposable. Hence, she requested to reject department’s appeal.

Discussion and Findings:

7.On going through the impugned order and the grounds of appeal, I find that the adjudicating authority has confirmed and appropriated the entire amount of Central Excise duty demanded in the two Show Cause Notices under Section 11A of the Central Excise Act, 1944 along with interest under Section 11AB of the Central Excise Act, 1944. He has set aside the proposal for imposition of fine in lieu of confiscation and imposed penalty of `60,000/- under Rule 25 of the Central Excise Rules, 2002. It is the contention of Revenue that penalty equivalent to the confirmed duty amount of `69,14,103/- is correctly imposable on Gyscoal Alloys in this case along with fine in lieu of confiscationeven though the impugned goods were not available for seizure and confiscation.I take up both issues separately for decision in the following paragraphs.

8.Firstly, I take up the issue of penalty imposed on Gyscoal Alloys under Rule 25 of the Central Excise Rules, 2002. Revenue has challenged the quantum of penalty imposed under Rule 25 ibid whereas Gyscoal Alloys have claimed in their cross-objection submissionsthat there was no case for increase in penalty as the amount of penalty imposed was more than the limit admissible under Rule 27 of the Central Excise Rules, 2002. Further, in their cross-objections, Gyscoal Alloys have relied on decisions by various Courts/Tribunalsholding that in cases of default of duty payment, penalty was imposable under Rule 27 ibid and not under Rule 25 ibid. It is pertinent to note here that the imposition of penalty under Rule 25 ibid has not been challenged by way of an appeal against the impugned order by Gyscoal Alloys. Even in the Revenue appeal, only the quantum of penalty imposed under Rule 25 ibid has been disputed and there is no dispute regarding the applicability of Rule 25 ibid. Nevertheless, I find that it is important to examine the Orderof Hon’ble High Court of Gujarat in the case of Commissioner of Central Excise and Customs Vs Saurashtra Cement Ltd. reported in 2010 (260) ELT 71 (Guj.)cited by Gyscoal Alloys in their cross-objections.It was held by Hon’ble High Court that penalty in cases of default in payment of duty was imposable under Rule 27 of the Central Excise Rules, 2002 and not under Rule 25ibid. The Tribunal decision contested by Revenue resulting in the said Ruling by Hon’ble Gujarat High Court is reported in Saurashtra Cement Limited Vs Commissioner of Central Excise, Rajkot – 2008 (225) ELT 395 (Tri.Ahmd.). The facts in paragraph 1 of this decision is extracted and reproduced below.

“The challenge in all the four appeals is to penalties of Rs. 1 lakh, Rs. 1 lakh, Rs. 75 lakhs and Rs. 50 lakhs imposed by the original Adjudicating Authority in terms of the provisions of Rule 25 of Central Excise Rules, 2002 on the ground of the delay in discharging duty liabilities by the appellant during the period July, 2004 to March, 2005, and upheld by Commissioner (Appeals).”

The period of default is significant in view of the fact that the category of goodsto which the deeming fiction of treating clearances without payment of duty applies is entirely differentas it stood during the period of July-2004 to March-2005 covered in the case of Saurashtra Cement Limited Vs Commissioner of Central Excise, Rajkot – 2008 (225) ELT 395 (Tri.Ahmd.)when compared to period after 01.6.2006 i.e after the amended sub-rule (3A) of Rule 8 ibid. The stipulations applicable to the period in the case of Saurashtra Cement Limited were as follows:

Provided further that till such time the amount of duty outstanding and the interest payable thereon are not paid, it shall be deemed that the goods in question in respect of which the duty and interest are outstanding, have been cleared without payment of dutyand where such duty and interest are not paid within a period of one month from the due date, and the consequences and the penalties as provided in these rules shall follow.

From the above it is evident that the basis for Hon’ble Tribunal and the Hon’ble High Court of Gujarat in their decisions was to treat the goods in respect of which default of payment had occurred as cleared without payment of duty. On the other hand, the period of default in the present appeal is January-2010 to July-2010 and the relevant stipulations under sub-rule (3A) to Rule 8 of the Central Excise Rules, 2004 as amended vide Notification No. 13/2006 – CE (NT) dated 01.6.2006 [Central Excise (Amendment) Rules, 2002] reads as follows:

(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.”

As per the provisions of amended sub-rule (3A) of Rule 8 ibid, the category of goods covered by the deeming fiction to be treated as clearances without payment of duty are the goods cleared after one month of the default period on which either or both of the conditions namely (i) the requirement to pay duty consignment-wise and (ii) the requirement to pay duty in cash without utilizing CENVAT credit has/have been violated. For this reason as well as in view of the fact that an appeal filed by Revenue has been admitted in the Hon’ble Supreme Court of India, I find that the issue cannot be treated as finally settled and hence the ratio of Commissioner of Central Excise and Customs Vs Saurashtra Cement Ltd. reported in 2010 (260) ELT 71 (Guj.)cannot beapplied to the facts of the present appeal. Therefore, I uphold the invoking of Rule 25 of the Central Excise Rules, 2004 in the Show Cause Notice for imposing penalty on Gyscoal Alloys for contravention of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002. It is stipulated in Rule 25 of the Central Excise Rules, 2002 that a penalty thereunder is subject to the provisions of Section 11AC of the Central Excise Act, 1994 and it is settled law that under Section 11AC ibid the quantum of penalty is equivalent to the amount of duty confirmed. Therefore, I allow the Revenue appeal for enhancing the penalty under Rule 25 ibid imposed on Gyscoal Alloys in the impugned order to `69,14,103/-.

9.Now I take up the request for imposition of fine in lieu of confiscation in the grounds of appeal filed by Revenue. Deciding on a similar request for imposition of redemption fine in lieu of confiscation when goods were not available for seizure, I find that Hon’ble Tribunal, Ahmedabad in the case of Commissioner of Central Excise & Customs, Surat Vs Premier Polyspin Private Ltd. – 2010 (257) ELT 447have upheld the reliance place by the original authority on the Larger Bench decision in the case of Shiv Kripa Ispat Private Limited Vs Commissioner of Central Excise & Customs, Nasik – 2009 (235) ELT 623and ordered that as there was no seizure of goods, confiscation cannot be ordered. The relevant extracts are reproduced below.

“2. Based on the above, proceedings were initiated which culminated into an order passed by Original Adjudicating Authority confirming demands and imposing penalties. On an appeal against the above, Commissioner (Appeals) upheld the duty demand of Rs. 7,19,837/-. The present appeal stands filed by the Revenue against that part of the impugned order of Commissioner (Appeals) vide which he has set aside the redemption fine of Rs. 2.50 Lakhs, imposed by the Original Adjudicating Authority, by confiscating the short found goods, on the ground that in the absence of physical availability of the goods, these could not be confiscated and redemption fine could not be imposed. For the above proposition, he has relied upon the Larger Bench decision of the Tribunal in the case of ShivKripa Ispat Private Limited v. Commissioner of Central Excise & Cus. Nasik - 2009 (235) E.L.T. 623 (Tri.-LB). He has observed as following:-