Partly allowed

Commissioner of Central Excise, DELHI-1 v. Sandhu Auto Industries

Delhi HC8 Mar 2017CEAC/4/2017

Case brief

AI extract

What is this about?

The CESTAT dismissed appeals against the quashing of penalty proceedings imposed under Rule 8(3A) of Central Excise Rules. Upholding previous High Court decisions that declared the provision unconstitutional, the tribunal held the appellant is not liable for the specific penalty under Rule 8(3A) but remains liable for general penalty under Rule 27 for contravening rules.

What did the court decide?

Penalty proceedings under Rule 8(3A) quashed for main appellant; general penalty of Rs. 5,000 imposed under Rule 27 for contravention.

Commissioner of Central Excise, DELHI-1… — Constitutional and Fundamental Rights | Delhi HC (2017)

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Signature Not Verified Digitally Signed • / By:AM /, , .- UL .l; YA :^^P^6;,cEAC;5/2pi6,CEA

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HON'BLEMR. JUSTICES. RAVINDRABflAT

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S. RAVinsnPRA^HAt(Oral) , . . ,

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L in ail these appealsthe assesseehad defaultedand had not paid ' :the excise, stipulatedperiod. It soughtto .^ilise the /- Cenvat;creditdue to itvtbwards,paymentof duty. Restrictionswere - •k' ;imp6^d by Rule SpA).pf the Gentral;Excise^les,,2^^^in- thisk; - . • •.regard: The adjudicatingauthorityappliedRule 8(3A) and proceeded . , J. '/to impose penalty'^well., The Commissioneron appeal in some of ^ : I ^' these cases merely,reduced'the' penalty halving, regard to the / ' ; ' marito^ In-these'ciftunistanc^'"^ assessee's.appealwas sent back. > . a / 2. ; the tlme^the CEST^took up .these-^^peals,tl^ Gi^afat •, ;-High Court had renderedajudgmentin Indsiir GlobalLtd, vs: UOI. . •; •: t2ai4(310)ELT 833 (Guj)]./TheCESTATnoticedl^es^id decision ^/ ' -. ' :^and'granted belief; hpldmg Ilie claims of Cenv^-creditto be, , • ymissibie.' Consequentially^it also;set aside the directwn,ofpe^^^ ,, ;V Operativeportionpfthe^orderm 0; • • ; > . - ,^ '[y I liave gone through the .case law relied upon , / ; ' ,' ', , by ,the learnedjAR before me. In all of them, the ^ -- -constitutional value of Rule 8 (3A) of Central . ' ' ^ { / ^ .^cise Ridesr2002-was_ . . ' : ffon'bleHigh Couk/Moreoyer,all thesedecisions-^ • '_h(^e hem passedby Honi?le mgh Coi^tpnor^^ - ..^ , .)• j the'decision of Indsur Global Ltd. (supra),.As , Mon bie Jtiign L>ouri uj yjujiA/Lii rii^^ — ' ''ofRule 8(3A) dfGentrdlE^^^^ Rules, 2004 to be \ : imcoiistitution^^^^ and decisions of

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, ,, 0; • • , / ; ^

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v /

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CEAG 19/20,16jCEAG,5/2016,CEAC 2/2017&CEAC 4/2017 / " . N . .

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by the Tribunal prior to Indsur Global Ltd.. (supra}. In these circumstancesi the only decision , available before me wherein the constitutional validity of Rule 8(3A),of Central Excise Rules, 2002 has been decided by Hon'ble High Court is Indus Global (supra). To maintain - judicial discipline, I am bound to follow the decision of Gujarat High Court in the case of Indsur Global • Lid. (supra). Therefore;I holdthatas Rule 8(3A).of Central Excise Rules, 2002 has been declared - unconstitutional,consequentlyproceedingsagainst the appellant are not sustainable. Further I find that appellant has contravenedthe provisions of Central Excise Rules, 2002,^ therefore, general penalty under Rule 27 of Central Excise Rules, . / • _ 2002 is imposable. Therefore, I impose penalty under Rule 27 of Central Excise Rules, 2002 on the , main appellant i.e. M/s. Space Telelink Ltd. of Rs.5,000/- (Rupees Five thousand only)] Further,. I , hold that the Managing Director has not contravened, penalty on Managing Director are set aside." •

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Likewise, in other appeals as well, the claims of Cenvat credit was held to be admissibleand the penaltyimposedwas set aside.

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The revenue urges that this Court is not bound,by the decisionof the Gujarat High Court. The learned counsel argues that being a, fiscal statute,whereby facility of paymentof duty is spelt out,by the provisionsitself, impositionof conditionsfor availingbenefit—as in the.case of Cenvat credit, cannot be characterisedbeing restrictiveof the freedom of trade. It is highlightedthat, Cenvat credit itself is a creationof statuteand the conditionsimposed, therefore,in order to fasten recoveryper se is not arbitrary. The learned counsel,further

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I CEAC 19/2016,CEAC 5/2016,CEAC 2/2017&CEAC 4/2017

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,- , ' -Page3of7

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submitted that'the .Gujarat High Court erred., in accepting the assessee's contentionsthat the restrictionsplaced upon,the use of Cehvatcredit'in case of default,were,oppressivein nature.

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The GujaratHigh Court took note ofthe revenue'scontention with regard to the justificationof Rule 8(3A). It was of the opinion that the restrictionsimposedunder the Rule were unreasonableto the extent that it only required a default, irrespectiveof the extent or ; nature of the default,,and.consequently,.excise duty had to be paid - withoutavailingCenvat credit. The High Court further reasoned it leads to q situationso harsh and a position so unenviable that it would be virtuallyimpossiblefor an assessee who is trapped in. the whirlpoolto get out ofhisfinancialdifficulties.It.is quite apartfrom being wholly reasonable, being irrational and arbitrary and therefore,violativeofArticle 14 ofthe Constitution. Itpreventshim . from availingcreditofduty alreadypaid by him. The reasoningof the Gujarat Hi^ Court in Indsur Global Ltd. vs. Union of India, -2014 (310) ELT 833; quoted above, was upheld by, A:R. MetallurgicalP.. Ltd V. CESTAT, Chennai 2015 (322) ELT 49 (Mad.); Sandley Industries vs. Union of India 2016 (326) 256 (P&H) .and ATV ProjectsIndia Ltd. vs. Union ofIndia, 2016 (341) ' " ELT60(A11.). : _ • 6. This Court also notices that the Indsur Global Ltd. {supra) decisionhad cited and reliedupon the decisionin EicherMotorsLtd vs. Union'of India 1999 (106) ELT 3 (SC) as well as upon the decisidnin Collectorvs. Dai IchiKarkariaLtd. 1999 (112) ELT 353 ,(S.C.) In Dflz/c/zz(supra),the Court,held as follows: ^

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CEAC19/2016,CEAC5/2016,CEAC 2/2017&CEAC4/2017

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"17. It is clear from these Rules, as we read them, that a manufacturerobtains creditfor the excise duty paid on raw material to-be used by him in the production of an excis'ableproduct immediately.it makes the requisite declaration and obtains an acknowledgmentthereof It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisableproduct. There is no provision in the Rules which providesfor a reversal of the credit by the excise authorities exceptwhere it has been illegally or irregularly taken, in which event it stands cancelledor, if utilised, has to be paidfor. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer withoutany limitation in timeor otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore,indefeasible. It > shouldalso be notedthat there isnoco-relationof the raw material and thefinal product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured pn the very day that it becomes available. 18. It is, therefore, that in the case of Eicher , Motors Ltd. V. Union ofIndia (1999)106 E.L.T. 3 : (1999 AIR SCW 563 :.AIR 1999 SC 892) this Court said thaPa credit under the Mbdvat scheme >} )) was "asgoodds takepaid.

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- The revenuehas arguedthatthe SupremeCourt has entertained a Special Leave. Petition against the judgment of the Gujarat and Madras High' Courts and furthermore,granted a stay of proceedings

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CEAC 19/2016,CEAC 5/2016,CEAC 2/2017&CEAC 4/2017

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Page 5of7

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and that in these circumstances,the law declared,in .thosejudgments are no longer applicable. This submissionis fallacious because in Shree Chamundi Mopeds Ltd vs. Church of South India Trust Association (1992) 3 SCC, the Supreme Court had observed as follows:

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"While considering the effect,of an interim order staying the operation of the order under challenge, a distinctionhas to be made between quashingofan order and stay ofoperationofan order. Quashing of an order results in the restorationofthe positionas it stood on the date ofpassingof the order which has been quashed. The stay of operation of an order does not, ^ however, lead to .such a result. It only means that the order which has been stayed would not be operativefrom the date ofpassing of the stay orderand it does not mean that the saidorderhas been wipedoutfrom existence. This means that if an order passed by the appellate authority is quashed and the matter is remanded, the result wouldbe that the appealwhich,had been disposed of by the said order of the appellate authority would be. restored and it can be said to he pending before the appellate authority after the quashingof the order ofthe appellateauthority. The same cannot be said with regardto an order stayingthe operationofthe orderofthe appellate authority because in spite ofthe said order, the order ofthe appellateauthoritycontinuesto exist in law and so long as it exists, it cannot be said that the appealwhich has been disposedofby the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing ofthe interim order dated February 21, 1991 by the Delhi High Court staying the operationof the order of the appellateauthority

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CEAC 19/2016,CEAC 5/2016,CEAC 2/2017&CEAC 4/2017 / 6of7

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datedJanuary 7, 1991does not have the effectof ^sviyingthe appealwhich had been dismissedby . ^he appellateauthorityby its orderdatedJanuary 7, 1991 and it cannot be said that afterFebruary. ,• 21, 1991, the said appeal stood revivedand was . ' pendingbeforethe appellateauthority." , '

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8., Itis Apparenttherefore,that an order keeping in abeyancethe judgmentofalowerCourtor authoritydoes not defacethe underlying basis ofthe judgmentitself,i:e. its reasoning. •

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In view of the above discussion, this Court'holds that the impugned order and, reasoning of the CESTAT does not call for interferenceand the Court is not persuadedto take a view differ.ent from those taken by the Gujarat, Allahabad,Punjab &Haiyana and Madras High Courts,'respectively. The appeals are consequently dismissed.-,. , ^ • v f

S. RAVINDRABHAT,J

NAJMI VAZIRI, J

MARCH 08, 2017/acni

CEAC 19/2016,CEAC 5/2016,CEAC2/2017&CEAC 4/2017

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Commissioner of Central Excise, DELHI-1 v. Sandhu Auto Industries

Case brief

What is this about?

What did the court decide?

Commissioner of Central Excise, DELHI-1 v. Sandhu Auto Industries

Case brief

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