CENVAT CREDIT UTILISATION - PRE DEPOSIT VIS-A-VIS CENVAT CREDIT

The question of whether pre deposit under section 35F of Central Excise Act can be adjusted from the cenvat credit account still remains to be decided by Supreme Court and/or High Court. This issue has long been disputed and various tribunals have answered in different manner, sometimes allowing and other times denying such compliance of stay order.

The Tribunal Larger bench decision on Birla Yamaha 83 ELT 396 remains the highest precedent which still lack confirmation from higher courts. However similar issue is discussed in Allahabad High Court, India Castings 104 ELT 17 where it was held that assesse is entitled to furnish the pre deposit duty from RG 23 A part II account and the same is treated as sufficient compliance. But the downside of this judgement which became precedent for all the further decisions is that this is not a speaking order. Unless and until a judgement backs up its decision by reasons it can be ignored for lack of logic. All the decisions later on by Tribunals diligently followed these two decisions. Those judgments include 254 ELT 528 (Tri-Calcutta), 243 ELT 601 (Tri-Chennai), 247 ELT 601(Tri-Chennai). Many have blindly stated the two decisions rather than giving the logic for its decision.    

In 2010, a division Bench Mumbai tribunal attempted to provide reason as to why pre deposit can be adjusted against Cenvat credit. The judgment in Manak Moti Forging Pvt Ltd 264 ELT 100 (Tribunal-Mumbai) explains that cenvat credit rules, 2004 Rule 3 (4) requires that cenvat credit can be utilised for making payment of duty and hence the duty element in pre deposit can be adjusted by way of cenvat credit. However the same cannot be utilised for making payment of penalty imposed. This is again followed by Finolex Cables Ltd 2012 –TIOL-505-CESTAT-Mum a judgment dated 30/1/2012. Through these cases, the position appeared to be settled in this matter atleast at the tribunal level.

The question resurfaced with the circular 962/05/2012 dated 28/3/2012 where by it is clarified that cenvat credit cannot be utilised for payment of arrears of duty in terms of Section 11A. This is based on harmonious reading of rule 8 of Central Excise Rules, 2002 and first proviso to rule 3(4) of the Cenvat Credit Rules, 2004 whereby utilisation of cenvat credit is restricted to the normal payment of duty in terms of rule 8 of the Central Excise Rules, 2002, where duty for a particular month or quarter is to be discharged by the 5th of the next month. The circular opened the pandora’s box again.
It is high time that clarity is reached in this issue rather than going roundabout creating confusion. Only logical conclusion that can be arrived at is by allowing duty element of the pre deposit to be adjusted from the cenvat credit account and refusing to make such arrangement in the case of interest and penalty, going by the provisions of CCR, 2004 and also with the withdrawal of the circular to give effect to the first point.          

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