Monthly payment of Excise Duty – Boon or Bane? – Draconian Law!
AS per Rule 8(1) of the Central Excise Rules, the duty on the goods cleared in a month has to be paid before the 6 th day of the following month. As per Rule 8(3), if the duty is not paid by the due date, the outstanding amount has to be paid with interest. As per Rule 8(3A), if the assessee defaults payment beyond thirty days, then:-
1. He has to pay excise duty on each consignment
2. He cannot utilize the CENVAT Credit for payment of duty.
These restrictions continue till the outstanding amount is paid with interest.
Now what is default ? Is a short payment default ?
Suppose you are required to pay a duty of Rs. 1,00,001 and by mistake you pay only Rs. 1,00,000 and after six months the Audit party finds out that you have not discharged the full duty during that month. What are the consequences? You were an offender in the sense that during the last four months or so, you were not entitled to utilize any CENVAT Credit and you were required to pay the duty consignment wise. So you will be asked to reverse the entire CENVAT Credit utilized and pay the amount in cash - you will also be penalized for non-payment of duty, irregular Availment of CENVAT Credit and evading duty. The penalty maybe a few Crores - all for that one rupee short paid!
The Tribunal in held that ‘default' is not defined in the Act or the Rules and any omission or failure to comply with the obligation relating to payment of duty in the manner prescribed and within the period specified under Rule 8(1) of the said Rules would amount to default in payment of duty. It may be a short payment of duty or it may be total failure to pay the duty .
The Pandora's box is open! Assessees who are paying a few lakhs of excise duty are now stuck with demands of Crores of rupees with mind boggling amounts of penalty, because they short paid duty some months ago. Certainly they cannot pay such huge sums of money and the only option for the Department would be to attach the properties, resulting in closure of factories and loss of jobs to many workers. The Government will be slowly killing the geese that were laying the golden eggs.
Should the law be so harsh on a defaulter?
Of course there is also another side to the issue. If you say short payment is not default, an assessee who has to pay Rs. 1,00,001/- can pay one rupee and claim that he has not defaulted but only short paid an amount of one lakh rupees!
There must be some equitable solution – something like an equal amount of penalty of the short paid amount.
And why does the Department keep quiet for months and years and then pounce upon the unsuspecting assessees with huge demands?. When the monthly returns are received they know that there was a default; why can't they enforce consignment wise payment immediately after one month?
The Board should consider this issue seriously – and what better time than budget time?