Trim Plastics Limited VERSUS Commissioner  of Central Excise & ST, Surat-I

CUSTOMS, EXCISE & SERVICE TAX 

APPELLATE TRIBUNAL,

WEST ZONAL BENCH : AHMEDABAD REGIONAL BENCH – COURT NO. 3 

EXCISE Appeal No. 12945 of 2014-DB

[Arising out of Order-in-Original/Appeal No SUR-EXCUS-001-COM-128-13-14 dated 20.03.2014 passed by Commissioner of Central Excise, Customs and Service Tax-SURAT-I]

 

Trim Plastics Limited

VERSUS

Commissioner of Central Excise & ST, Surat-I

 

APPEARANCE :

Shri Shailesh P. Sheth, Advocate for the Appellant

Shri Tara Prakash, Deputy Commissioner (AR) for the Respondent

CORAM: HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)

DATE OF HEARING : 26.04.2023 DATE OF DECISION: 02.05.2023

FINAL ORDER NO. A/11084 / 2023 RAMESH NAIR :

The issue involved in the present case is that whether the appellant is liable to pay excise duty from PLA as against the duty paid from accumulated Cenvat credit when the appellant have defaulted the monthly payment of duty beyond prescribed time limit, in terms of Rule 8(3A) of Central Excise Rules, 2002.

 

 

2. Shri Shailesh P. Sheth, learned Counsel appearing on behalf of the appellant at the outset submits that entire case was made out invoking Rule 8(3A) of Central Excise Rules, 2002 however the said rule was held ultra- vires in the case of Indsur Global Limited vs. UOI – 2014 (310) ELT 833 (Guj.).Following the said judgment there are many other judgments were passed which are relied upon as under:-

 

 

• PrecisionFasteners Limited  CCE – 2015 (316) ELT 595 (Guj.)

 

• R. Metallurgicals P. Limited vs. CESTAT, Chennai – 2015 (322) ELT 49 (Mad.)
• Malladi Drugs & Pharmaceuticals Limited vs. UOI – 2015 (323) ELT 489 (Mad.)

 

• Frontier Alloy Steels Limited vs. Union of India – 2017 (354) ELT 54 (All.)

 

• Principal Commissioner of CE, Delhi vs. Space Telelink Limited – 2017 (355) ELT 189 (Del.)
• CCE& , Nashik vs. Nashik Forge Pvt. Limited – 2019 (368) ELT 20 (Bom).

 

• Utkal Alloys Pvt. Limited vs. CCE & ST, Bhubaneshwar – 2021 (55) GSTL 473 (Tri-Kolkata)
• Solar Chemferts Pvt. Limited vs. CCE, Thane-I -2012 (276) ELT 273 (Tri-Mumbai)

 

• Final Order No. 22028/2014 passed by the Hon’ble CESTAT, South Zonal Bench, Bangalore in the matter of M/s. Shree Radha Krishna Alloys (P) Limited

 

3. He further submits that the appellant have paid interest for the delay in payment of duty therefore in the present case the impugned order is not

 

 

4. Shri Tara Prakash, learned Deputy Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

 

 

5. We have carefully considered the submissions made by both the sides and perused the record.In the present case demand of excise duty was made despite the appellant have paid the excise duty from accumulated Cenvat credit. The demand was raised invoking Rule 8(3A) of Central Excise Rules, 2002 which restricts the payment from Cenvat credit in case the assessee defaults monthly duty payment beyond prescribed time-

 

 

However the Hon’ble Gujarat High Court held the Rule 8(3A) as ultra vires and passed the following order:-

“24.  We may recall that the petitioner has challenged only that portion of sub-rule (3A) of Rule 8 which requires a defaulter to clear the finished product on payment of excise duty without availing the Cenvat credit. We may consider the petitioner’s challenge to the vires of such rule in the background of the statutory scheme. Before doing so, however, we may examine the parameters on which a delegated legislation can be called in question. It is by now well settled that a legislation enacted by the Union or the State Legislature enjoys a presumption of constitutionality. Heavy burden is one who questions its constitutionality to establish the same through cogent materials. A reference in this respect can be made to a Constitution Bench decision of the Supreme Court in the case of State of Jammu & Kashmir v. Triloki Nath Khosa – AIR 1974 SC 1. It is also well settled that the principle of presumption of constitutionality also applies to a delegated legislation. In the case of St. Johns Teachers Training Institute

1. Regional Director, National Council for Teacher Education – (2003) 3 SCC 321, it was observed that “it is also well settled that in considering the vires of subordinate legislation one should start with the presumption that it is intra vires and if it is open to two constructions, one of which would make it valid and other invalid, the Courts must adopt that construction which makes it valid”.
2. As held by the Supreme Court in the case of State of A.P McDowell & Co. – (1996) 3 SCC 709, a law made by the Parliament or the State Legislature can be struck down on two grounds only, namely, lack of legislative competence or violation of any of the fundamental rights guaranteed in part III of the Constitution or any other constitutional provisions. However, the subordinate legislation does not enjoy the same level of immunity from the court’s scrutiny. In addition to the two grounds available for challenge to a legislation by the Parliament or the State Legislature, a delegated legislation can be struck down also on other grounds such as, that it is ultra vires the parent Act, the provisions are in conflict with the parent Act or that the same is unreasonable or wholly arbitrary or irrational. In the case of Indian Express Newspapers (Bombay) Pvt. Ltd. v. Union of India – (1985) 1 SCC 641 = 1999 (110) E.L.T. 3(S.C.), the Supreme Court observed as under :

“75. A piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legislation must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable, unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the Judges would say “Parliament never intended authority to make such rules. They are unreasonable and ultra vires”. The present position of law bearing on the above point is stated by Diplock L. J. in Mixnam. Properties Ltd. v. Chertsey U. D. C. – (1964) 1 QB 214 thus :-

“The various grounds upon which subordinate legislation has sometimes been said to be void …………… can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus the kind of unreasonableness which invalidates a bye-law is not the antonym of “reasonableness” in the sense of which that expression is used in the common

 

 

law, but such manifest arbitrariness, injustice or partiality that a court would say

: ‘Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires….‘ If the courts can declare subordinate legislation to be invalid for ‘uncertainty,’ as distinct from unenforceable    this must be

because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain  “

xxxx

“77. In India arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. In India any enquiry into the vires of delegated legislation must be confined to the grounds on which plenary legislation may be questioned, to the ground that it is contrary to the statute under which it is made, to the ground that it is contrary to other statutory provisions or that it is so arbitrary that it could not be said to be in conformity with the statute or that it offends Article 14 of the Constitution.”

26. With these parameters in mind, we may consider the petitioner’s ground for challenge. Adverting to the question of lack of power to frame such rule, we may notice that Section 37 of theCentral Excise Act, 1944 is the rule making power contained in the said Act. Sub-section (1) thereof provides that the Central Government may make rules to carry into effect the purposes of the  Sub-section (2) of Section 37 lists the various purposes for which such rules may provide. It begins with the expression “in particular and without prejudice to the generality of the foregoing power, such rules may  ”.

Relevant clauses of sub-section (2) of Section 37, for our purpose, are the following :

“(ib) provide for the assessment and collection of duties of excise, the authorities by whom functions under this Act are to be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable, and the recovery of duty not paid’

(ibb) provide for charging or payment of interest in the differential amount of duty which becomes payable or refundable upon finalisation of all or any class of provisional assessments;

xxxx xxxx

(xiiia) provide for withdrawal of facilities or imposition of restrictions (including restrictions on utilisation of CENVAT credit) on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of CENVAT credit;”

27. According to Shri Parikh, when clause (xiiia) of sub-section (2) of Section 37 circumscribes the rule making power in case of evasion of duty, the sub-ordinate legislation cannotfall back on the general provisions of sub-section (1) of Section 37 and therefore, any power to frame sub-rule (3A) of Rule 8 must be seen to have been by necessary implication taken away. This contention, however, for various reasons cannot be accepted. Firstly clause (xiiia) was introduced in the statute with effect from 8-5- 2010. Sub-rule (3A) of Rule 8 was introduced in the year 2006. No guidance, therefore, can be had from clause (xiiia) in the context of discretion of the power of the rule making authority under the delegated  Further, quite apart from sub-section

(1) of Section 37 itself giving sufficiently wide powers to the Central Government to frame rules to carry into effect the purposes of the Act, sub-section (2) of Section 37

 

 

further clarifies that the purposes enumerated in various clauses under the said sub- section are without prejudice to the generality of the powers flowing from sub-section

(1). If, therefore, any rule is framed which would be otherwise within the legislative competence in view of the authority given to the Government under sub-section (1) to carry into effect the purposes of the Act, such rule cannot be targeted as being outside of a particular clause contained in sub-section (2) of Section 37. We must notice that Rule 8 and sub-rule (3A) thereof is not a charging provision. It is a mechanism for collection of tax already become due and payable. Had any new tax been levied or charge or penalty created under such rule, the question of falling back on the general power where specific provisions excluded, such a power would arise. Further, clause (ib) of sub-section (2) of Section 37 authorizes the Government to frame rules to provide for the assessment and collection of duties of excise, the authorities by whom functions under the Act would be discharged, the issue of notices requiring payment, the manner in which the duties shall be payable and the recovery of duty not paid. This clause thus gives ample power to the Government to make rules for providing a mechanism for assessment and calculation of duties of excise, the authorities who would carry out such functions, the manner of payment of duty and most importantly, recovery of duty not paid. The fact that sub-rule (3A) of Rule 8 provides for the mechanism of duty unpaid is beyond cavil. It is precisely when an assessee who was given the facility of deferring the payment of duty beyond the clearance has not been able to pay the same by the due date and further defaults by another 30 days thereafter that sub-rule (3A) of Rule 8 would apply. It enforces the recovery to be made thereafter in a particular manner. Very clearly, the said provision is not beyond the rule making power of the sub-ordinate legislature.

28. The second contention of the petitioner that the provision creates a hostile discrimination treating equals as unequals needs to be rejected out of hand. Sub-rule (3A) of Rule 8 recognizes two distinct and different classes of assessees. As long as an assessee abides by the time-frame provided in sub-rule (1) of Rule 8 and pays the duty monthly on 5th or 6th day of the month for the previous month, he does not incur any further liability. It is only when he not only misses the crucial date but is unable to or chooses not to pay the duty for another 30 days that sub-rule (3A) of Rule 8 would In such a case, the facility of monthly payment and adjustment of Cenvat credit is taken away. The fact that two sets of assessees form different and distinct class identifiable and differentiated by intelligible differentia cannot be disputed. In one class, we have those assessees who complied with the requirements of the rules and made payment of excise duty by the due date and the other class forms of those assessees who missed the due date by at least 30 days. If the Legislature, therefore, treats these two distinct classes differently, this would certainly not a case of hostile discrimination. An assessee who for whatever reasons is unable to pay the duty within the time prescribed by the statute cannot complain of being differently treated from those who fulfill the statutory requirements. The provisions contained in sub-rule (3A) have a purpose to achieve relatable to the class of assessees who failed to pay the duty in time is also equally clear. It is only when the condition of payment of duty by the 5th or the 6th day of month following the previous month of clearance is not fulfilled by an assessee that the stringent requirement of collection of duty on each consignment and withdrawal of the facility of Cenvat credit follows. These are undoubtedly stringent provisions provided to deal with the class of assessees who are unable to pay the duty in time.
29. This brings us to the last limb of the petitioner’s contention, namely, that the condition attached by sub-rule (3A) of Rule 8 is unreasonable and therefore, violative of Article14 of the Constitution and amounts to serious restriction on the petitioner’s right to carry on trade or business of his choice guaranteed under Article 19(1)(g) of the Constitution. This contention requires a closer scrutiny. As noted earlier, the restrictions of sub-rule (3A) come in two  Firstly, a defaulter assessee has to clear the

 

 

consignments on spot payment of excise duty and secondly, that such excise duty has to be paid in cash without availing Cenvat credit. This rule does not make any distinction between the willful defaulter and the others. Though term ‘willful defaulter’ has not been defined in the statute, the concept is not an unknown one. Section 11AC of the Central Excise Act provides for penalty in case of non-levy, short levy or non-payment or short payment or erroneous refund of the duty where the same is occasioned by reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or the rules made thereunder with an intent to evade payment of duty. Likewise, Section 11A which pertains to recovery of duties not levied or not paid or short levied or short paid or erroneously refunded makes a clear distinction when it gives the period of limitation available to the department to institute proceedings, in such cases between such non-payment having been occasioned due to fraud, collusion, etc., in which case a longer period of limitation is available as against rest of the cases. Likewise, under Rule 12CC of the Central Excise Rules as it stood at the relevant time, power was given to the Government by notification to withdraw facilities from the manufacturers, registered dealers or exporters under certain circumstances having regard to the extent of evasion of duty, nature and type of offences or such other factors as has been relevant. In exercise of such powers, Notification No. 17/2006 was issued providing for withdrawal of facilities and for imposition of restrictions against who are prima facie found to be knowingly involved in any of the following :

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

• removal of goods without declaring the correct value for payment ofduty, 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;
• taking of CENVAT credit without the receipt of goods specified in the document based on which the said credit has been taken;
• taking of CENVAT credit on invoices or other documents which a person has reasons to believe as not genuine;
• issueof excise duty invoice without delivery of goods specified in the said invoice;
• 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.”

This Rule 12CC as well as the notification issued by the Government would apply to special class of assessees who through their conscious act tried to evade duty.

30. It can be seen that the reasons for non-payment of excise duty can be manifold and not necessarily in all cases have to be willful default by an assessee despite availability of funds. Excise duty may remain unpaid due to economic reasons, due to slowness in the business or due to financial crunch temporarily felt by the manufacturer who though might have cleared the finished goods and also sold the goods in themarket may not have received the payment as promised. All such cases of defaults willful or otherwise are clubbed together for the same treatment and a stringent condition of payment of excise duty without availing Cenvat credit is imposed. It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for payment of duty in addition to the duty which he has already  Cenvat

 

 

credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his Cenvat credit account available to him for adjustment for payment of excise duty liability upon clearance of the finished product. If such facility is withdrawn, it could be appreciated, his ability to continue the business under such adverse financial climate would further diminish. This would be a cyclical vicious pattern where in every month he would fall behind by the due date unable to raise cash flow for payment of duty for the clearance which he desires to make and is therefore, further saddled with the burden of paying such duty in cash without availing CENVAT credit. This rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied.

31. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing Cenvat credit of the duty already paid and thereby suspends, if not withdraws, his right to take credit of the duty already paid to the Government. It is true that such a provision is made because of peculiar circumstances the assessee lands himself in. However, when such provision makes no distinction between a willful defaulter and the rest, we must view its reasonableness in the background of an ordinary assessee who would be hit and targeted by such a provision. As held by the Supreme Court in the case of Eicher Motors Ltd. (supra) an assessee would be entitled to take credit of input already used by the manufacturer in the final product. In the said case, the Supreme Court was dealing with Rule57F which was introduced in the Central Excise Rules, 1944 under which credit lying unutilized in the Modvat credit account of an assessee on 16th March, 1995 would  Such provision was questioned. The Supreme Court held that since excess credit could not have been utilized for payment of the excise duty on any other product, the unutilised credit was getting accumulated. For the utilization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16-3-1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. We may also recall that in the case of Dai Ichi Karkaria Ltd. (supra) it was reiterated that a manufacture obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable produce immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product.
32. As held by the Supreme Court in the case of Chantamanrao (supra), the phrase “reasonable restriction” connotes that the limitation imposed on a person in enjoyment of the right should not be arbitraryor of an excessive nature, beyond what is required in the interests of the public. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by Clause (6) of Article 19, it must be held to be wanting in that quality.
33. In the case of Om Kumar (supra), the Supreme Court recognized the applicability ofthe principle of proportionality in judging the validity of a provision on the touchstone of reasonableness under Article 14 of the Constitution. It was observed :

 

 

“53. Now under Art. 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the concerned statute permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the Administrator for imposing restriction or whether the Administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc. In such cases, the administrative action in our country, in our view, has to be tested on the principle of ‘proportionality,’ just as it is done in the case of the main legislation. This, in fact, is being done by our Courts.”

34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of Rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing Cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts,therefore, that portion of sub-rule (3A) of rule must fail.
35. The situation can be looked at slightly different angle. With or without the provisions of sub-rule (3A), liability to pay interest for the default period as per sub-rule

(3) of Rule 8 continues. Sub-rule (3A) is basically a mechanism for stringent recovery and does not create a new liability unless this mechanism itself is breached. In such a mechanism to provide for withdrawal of CENVAT credit facility for paying the duty borders to creating a penalty. Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty.

36. In the result, the condition contained in sub-rule (3A) of Rule 8 for payment of duty without utilizing the Cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion “without utilizing the Cenvat credit” of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, shall be rendered invalid.
37. In the present case, the further prayer of the petitioner is for setting aside the order, dated 27-2-2009 passed by the adjudicating authority. This prayer, however, cannot be granted. It is because of the following reasons.
38. Against the order of the adjudicating authority, the petitioner had a statutory right ofappeal before the Commissioner in terms of Section 35 of the Central Excise Act, 1944. Such appeal had to be filed within sixty days from the date of communication of the order. The Commissioner, had power on being satisfied about the sufficient cause preventing the petitioner from preferring such appeal to condone delay upto a maximum period of 30 days. Undisputedly, the appeal was preferred after 173 days on expiry of the limitation. The Commissioner, therefore, could not have and rightly did not

 

 

condone the delay. Yet again, against such order of the Commissioner, the petitioner approached the Tribunal with further delay of three years. The Tribunal was not convinced about the grounds of delay and was also of the opinion that in any case, the Commissioner’s order being legal, even if the delay was condoned, no relief could be granted to the petitioner. If now we grant the relief as prayed for by the petitioner, we would be rendering the entire mechanism of appeal to the Commissioner and the further appeal to the Tribunal nugatory. The first appeal before the Commissioner comes with a rigid time-frame and cannot be presented under any circumstances beyond 30 days after the period of limitation. The Legislature having in its wisdom limited the power of the Commissioner to condone delay upto a maximum period prescribed in the section. Such statutory prescription cannot be rendered meaningless by entertaining the petitioner’s challenge directly now before the High Court once when the petitioner failed in his attempt before the Commissioner and thereafter also before the Tribunal. Insofar as the petitioner’s second prayer, therefore, is concerned, the same is rejected. This would, however, not have any effect on our declaration of invalidity of portion of sub-rule (3A) of Rule 8 insofar as the petitioner’s remaining pending proceedings at various stages are concerned.

39. Inthe result, the petition is disposed of
40. At the request of learned counsel Shri Ravani for the department, this judgment is stayed till 15th January 2015.”

 

 

6. From the above decision, it is clear that appellant is not barred from making payment of excise duty from accumulated Cenvat credit therefore demand once again from PLA cannot be made.Various other judgments cited by learned Counsel is on the same line following the judgment of Indsur Global Limited (supra). Therefore, the issue is no more res-integra. Accordingly, we set-aside the impugned order and allow the appeal.

(Pronounced in the open court on 02.05.2023)

 

 

(Ramesh Nair) Member (Judicial)

 

(C L Mahar) Member (Technical)

KL