The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that where excise duty has already been discharged through CENVAT Credit, the department cannot compel an assessee to pay the same duty again in cash through the Personal Ledger Account (PLA).
The Bench of Justice S. S. Garg (Member-Judicial) and P. Anjani Kumar (Member-Technical) has observed that only the applicable interest for delayed payment is recoverable, while setting aside the equivalent penalty imposed under Rule 25 and restricting the penalty to ₹5,000 under Rule 27 of the Central Excise Rules, 2002.
The appellant, a manufacturer of threaded and unthreaded nuts falling under Chapter 73 of the Central Excise Tariff Act, was accused by the department of wrongly availing the Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE during the financial year 2010-11. According to the department, the assessee had crossed the SSI exemption threshold of ₹4 crore in the preceding financial year 2009-10 and was therefore not entitled to claim the exemption in the following year.
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The department also alleged that the assessee had incorrectly paid excise duty on a quarterly basis and filed ER-3 returns, whereas it ought to have paid duty monthly and filed ER-1 returns. Based on these allegations, two show cause notices sought recovery of ₹4.60 lakh, along with interest and penalties. The adjudicating authority confirmed the demand, and although the matter was once remanded by the Tribunal for fresh verification, the demand and an equivalent penalty were again confirmed, prompting the present appeal.
Before the Tribunal, the appellant argued that the authorities had failed to verify evidence demonstrating that branded goods worth ₹39.88 lakh cleared during 2009-10 ought to have been excluded while computing aggregate clearances for SSI exemption purposes.
After excluding these branded goods, the effective value of clearances allegedly stood at ₹3.92 crore, below the statutory threshold of ₹4 crore, making the appellant eligible to continue availing SSI exemption and complying with quarterly payment and return filing requirements.
The appellant further submitted that even if there had been a delay in payment of duty, the amount already discharged through CENVAT Credit could not be treated as invalid or recovered again in cash. It also contended that there was no suppression, fraud or intent to evade duty that could justify imposition of an equivalent penalty under Rule 25.
The Tribunal observed that the principal controversy revolved around the appellant’s entitlement to SSI exemption and the department’s insistence that duty should have been paid monthly in cash instead of quarterly through CENVAT Credit.
Referring to the judgment of the Punjab and Haryana High Court in Sandley Industries and other judicial precedents cited by the appellant, the Tribunal held that duty validly discharged through CENVAT Credit cannot be demanded once again in cash or through the PLA merely because of procedural irregularities in payment.
The Bench noted that the appellant had fairly accepted liability to pay interest for the delayed payment and had quantified the same at ₹22,457. The Tribunal accepted this position, holding that only interest was payable on account of the delay.
The Tribunal also examined the legality of the equivalent penalty imposed under Rule 25 of the Central Excise Rules, 2002.
It found that there was no evidence of fraud, wilful misstatement, suppression of facts or intention to evade payment of duty, which are essential ingredients for invoking Rule 25.
The Bench further noted that during the first round of appellate proceedings, the Commissioner (Appeals) had himself reduced the penalty to ₹5,000 under Rule 27, recognising the absence of circumstances warranting a harsher penalty.
Accordingly, the Tribunal held that only the general penalty prescribed under Rule 27 was justified and restored the penalty to ₹5,000.
Partially allowing the appeal, the CESTAT directed that the appellant to pay interest of ₹22,457 on the delayed payment of duty. The appellant shall pay a penalty of ₹5,000 under Rule 27 of the Central Excise Rules, 2002. The demand for payment of duty again in cash, despite its earlier discharge through CENVAT Credit, was not sustained.
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