When CENVAT Credit is allowed, there is no outstanding duty payable, and therefore, the question of payment of interest and penalty does not arise.

S.Vimala, J.

These Civil Miscellaneous Appeals have been filed, one filed by the Director and another by the company, as against the orders passed by the Customs, Excise and Service Tax Appellate Tribunal, (CESTAT) Chennai, in Final Order Nos.40318 and 40319 of 2014, dated 09.04.2014.

Brief facts:-

2. The appellants were engaged in the manufacture of mercerized cotton yarn during the period from 01.04.2003 to 01.11.2003. Except during this period, i.e., neither before nor thereafter, the mercerized cotton yarn remained exempted from the payment of duty. The appellants procured duty paid grey yarn, mercerized the same and cleared the product without payment of duty during the said period.

2.1. The original authority issued a show cause notice, dated 22.09.2004, as to why an amount of Rs.1,22,300/-being the duty on Mercerized yarn should not be demanded along with penalty and interest. The appellants sent a reply, dated 19.10.2004 and filed a written submissions, dated 21.12.2004, contending that the show cause notice was time barred; that there was no intention on the part of the assessee to evade payment of duty; with the introduction of Excise duty on textiles, in Budget 2003, there was lot of confusion at all levels with frequent amendments and as soon as the demand was made, it was paid without any delay. Thereafter, the Original Authority confirmed the demand of duty of Rs.1,22,300/-. Rs.1,06,348/-was adjusted by approproation from CENVAT Credit and an amount of Rs.22,069/-was paid, by cash, vide TR6 challan, dated 25.11.2003. In addition to that, the Original Authority made the following demands:-

(i) payment of interest at applicable rate under Section 11AB of the Central Excise Act, 1944 (hereinafter referred to as “the Act”);

(ii) penalty of Rs.1,22,300/-under Section 11 AC of the Act;

(iii) penalty of Rs.20,000/-on the Director, under Rule 26 of the Central Excise Rules, 2002 (hereinafter referred to as “the Rules”).

2.2. The appellants filed an appeal before the Commissioner of Central Excise (Appeals), who rejected the appeals, by the order, dated 06.06.2005.

2.3. Thereafter, challenging the same, an appeal was filed before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The CESTAT found that the rejection of the assessee's prayer, for grant of, input duty credit, is unjustifiable and that the appellants must be allowed to utilise input duty credit, while the duty is demanded on the final product. The lower authority had declined the relief on the ground that the appellants did not follow the procedure like filing of declaration for availing the benefit of CENVAT Credit etc., But the CESTAT held that a substantive right is not to be denied on the ground of infraction of procedural provision. On these grounds, the CESTAT set-aside the order of the lower authorities and allowed the appeal to that extent.

2.4. Thereafter, on 27.02.2009, the second respondent herein sent a communication, requiring the appellants to pay the penalty of Rs.1,22,300/-. The appellants replied on 16.03.2009 stating that as the appeal filed by the appellant was allowed by the CESTAT, the question of payment of penalty does not arise. Four years and four months later, i.e., on 22.08.2013, the second respondent again sent a communication, dated 11.02.2013, requiring the appellants to pay penalty. The appellants replied, reiterating the contention that, once the input duty credit was granted by the CESTAT, the question of payment of penalty does not arise. The respondents insisted that the penalty must be paid and threatened stating that, unless the payment is made, recovery proceedings would follow.

2.5. The appellants filed an appeal before the first respondent, challenging the communication, dated 04.10.2013. The first respondent returned the appeal dated 11.12.2013, without giving an opportunity and without assigning any reasons. The rafter, a communication, dated 17.12.2013 was issued, directing the appellants to pay