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Judgment
The present appeal is directed against the impugned order dt. 04/03/2020 passed by the Commissioner of Central Tax (AppealsII), Bangalore
whereby the appeal of the appellant was dismissed on the ground of non-compliance of the manadatory predeposit under Section 35F of the Finance
Act, 1994.
Briefly the facts of the present case are that the appellant is a 100% EOU and engaged in the manufacture and exports of readymade garments
falling under Chapter 61, 62 and 65 of Central Excise Tariff Act, 1985 (CETA) and is registered with Central Excise. During the course of audit of
their records, it was observed from their ER-2 returns and sale invoices pertaining to DTA clearances made, there was short payment of Central
Excise duty equivalent to Customs Education Cess and Customs Secondary higher-education cess. As per Section 3(1) of Central Excise Act, 1944
read with Notification No.23/2003 â€"CE dt. 31/03/2003, the total excise duty to be paid by100% EOU units on DTA clearances shall be equal to the
aggregate of duties of customs leviable under the Customs Act, 1962 i.e. BCD, CVD and Customs Education Cess and Customs Secondary Higher
Education Cess. The duty on such clearances should be paid in the manner prescribed in Rule 8 of Central Excise Rules, 2002. In case of failure to
pay the amount of duty by due date, they are liable to pay the outstanding amount along with interest at the rate specified vide Notification under
Section 11AA of the Act on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the
outstanding amount. Whereas the appellant has paid duties of excise equivalent to BCD and CVD only on the excisable goods cleared in Domestic
Tariff Area. Therefore, it appeared that they had short paid the duty equivalent to customs education cess and customs secondary higher education
cess. Hence, it appears that they are liable to pay the duty of Rs.3,76,308/-. On being pointed out by the Audit, the appellant vide their letter dt.
05.03.2018 have intimated that they have debited the said amount of Rs. 3,76,308/- in their input tax ledger and paid the interest of Rs.62,016/- vide
challan No.00163 dt. 05.03.2018. Whereas it appeared that the appellant had debited the said amount during the month of December 2017 in their
cenvat credit register maintained by them. However, the appellant is eligible to transfer the closing balance of Cenvat Credit as on 30.06.2017 as per
Cenvat Credit Rules, 2004 under Central Excise Law to the electronic Credit Ledger under the GST Law as per the transitional provisions of filing
TRAN1 and there is no provision to debit their cenvat credit register for discharging their central excise liability after implementation of GST Law.
Hence the debit of Rs.3,76,308/- made by them appears to be invalid. Further, it appeared that they had neither debited the said duty of Rs.3,76,308/-
in their electronic ledger and not reflected the debits in the statutory GSTR3B returns filed nor paid the said duty of Rs.3,76,308/- through
cash/challans. As the debit of Rs.3,76,308/- made by them in their cenvat credit register is invalid it appears that the central excise duty equivalent to
Customs Education Cess and Customs Secondary Education Cess totaling to Rs.3,76,308/- along with appropriate interest is recoverable under Section
11A and 11AA of the Central Excise Act, 1944. On these allegation, a show-cause notice was issued demanding Central Excise duty equivalent to
education cess and Customs secondary education cess totaling to Rs.3,76,308/- under Section 11A of the Central Excise Act along with interest. After
following due process, the adjudicating authority confirmed the demand along with interest and also appropriated the interest of Rs.62,016/- made vide
challan No.000163/05.03.2018. Aggrieved by the said order, appellant filed appeal before the Commissioner(Appeals) but the Commissioner(Appeals)
without going into the merits of the case, dismissed the appeal for non-compliance of mandatory predeposit under Section 35F of the Finance Act.
Hence the present appeal.
Heard both sides and perused the records.
4.1. Learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without appreciating
the facts and the law. He further submitted that the Commissioner(Appeals) has heard the matter on merits without any objection on non-compliance
of predeposit at the time of personal hearing and recorded the submissions made on merits at para 9 of the impugned order. He further submitted that
even during the course of personal hearing, no objection was taken by the Department regarding the mandatory predeposit. He further submitted that
the appellant had paid the entire duty demanded by debiting their cenvat credit account but the same was not taken cognizance in the impugned order.
He further submitted that once the entire amount has already been paid, the question of depositing further sum does not arise as per Section 35F of the
Central Excise Act, 1944.
4.2. On merits, the learned counsel submitted that the appellant has correctly paid the duty of excise from the cenvat credit account. He further
submitted that education cess and secondary education cess is not allowed to be carried forward as eligible duty of cenvat credit as per Section 140(1)
read with Explanation 1 to Section 140(10) of CGST Act, 2017. He also submitted that once the credit of education cess and secondary education
cess is specifically disallowed to be carried forward as transitional credit, they remain and retain their character as education cess and secondary
education cess and as cenvat credit as per Rule 3 of CCR, 2004 and can be utilized towards payment of impugned demand. He further submitted that
both the authorities have failed to consider Section 140 of CGST Act, 2017 read with CCR, 2004. The learned counsel also relied upon the Circular of
CBIC No.87/06/2019 GST dt. 02.01.2019 wherein the Board has clarified at para 5 that “No transition of credit of cesses including cess collected
as additional duty of customs would be allowed as per Explanation 3 of Section 140 of CGST Act, 2017â€. He further submitted that in view of
Section 140(1) read with Explanation 1 to Section 140(10) and the circular issued by the CBIC, it is clear that the credit of cesses are specifically
disallowed from transitioning into CGST Act, 2017. He also submitted that as per Section 174 of CGST Act, 2017, the action of taking credit as per
Section 3(1) of CCR 2004 and utilization of the same as per Rule 3(4) of CCR, 2004 is saved specifically by Section 174 of CGST, 2017 but the
impugned order has failed to consider the aforesaid provision and hence liable to be set aside.
On the other hand, the learned AR reiterated the findings of the impugned order.
After considering the submissions of both the parties and perusal of the material on record, I find that the dismissal of the appeal for non-
compliance of mandatory predeposit under Section 35F of the Finance Act, 1994 is not sustainable in law in the present case because the appellant
has already paid the entire duty by debiting the cenvat credit account and also paid the interest in cash. Further I feel that the Commissioner(Appeals)
after hearing the matter on merits should not have dismissed the appeal for non-compliance of Section 35F. Further I also find that as per Section
140(1) read with Explanation 1 to Section 140(10) of CGST Act, 2017, education cess and secondary education cess is not allowed to be carried
forward as eligible duty of cenvat credit. This position has also been clarified by the CBIC vide circular No.87/06/2019GST dt. 02.01.2019 but both the
authorities have failed to consider the provisions provided in Section 140 as well as CBIC Circular dt. 02.01.2019. Once the credit of education cess
and secondary education cess is specifically disallowed to be carried forward as transitional credit, they remain and retain their character as education
cess and secondary education cess as cenvat credit as per Rule 3 of CCR, 2004. Since there is no finding on the merit by the learned
Commissioner(Appeals), it will not be appropriate to decide the appeal on merits. The dismissal of the appeal for non-compliance of mandatory
predeposit is not justified in law when the appellant has already paid the entire duty by debiting the cenvat credit account. In view of this, I am of the
considered opinion that impugned order is liable to be set aside and I do so and remand the matter back to the learned Commissioner(Appeals) for
disposal of the appeal on merits after considering the various provisions contained in Section 140 of CGST Act, 2017 and the Circular dt.02.01.2019
issued by CBIC and after following the principles of natural justice. With these observations, I allow the appeal by way of remand to the learned
Commissioner(Appeals). Appeal is accordingly disposed of.
(Order was pronounced in Open Court on 17/06/2021)