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2014 (12) TMI 656 - HC - Central ExciseDemand of interest for delayed payment of tax - Payment of interest through CENVAT Credit - Subrule (3A) of Rule 8 of the Central Excise Rules, 2002 - Held that - When the entire showcause notice, order in original and appellate order are based on Subrule (3A) of Rule 8, the portion of which came to be struck down in 2014 (12) TMI 585 - GUJARAT HIGH COURT , such orders cannot survive. We have narrated facts only to demonstrate that the facts of the present case squarely fall within the portion of the Rule which was declared as ultra vires by the Court. It was only because the petitioner paid interest of barely about ₹ 12,000/through Cenvat Credit instead of paying it in cash, their all subsequent clearances were stigmatized. This was solely relying on the portion of Subrule (3A) of Rule 8, which required that the future clearances of a defaulter must be without utilization of the Cenvat Credit. - Decided in favour of assessee.
Issues Involved:
1. Validity of Subrule (3A) of Rule 8 of Central Excise Rules, 2002. 2. Legality of the adjudicating authority's order dated 27.07.2010 and the appellate order dated 21.12.2010. 3. Utilization of Cenvat Credit for payment of interest on delayed excise duty. Detailed Analysis: 1. Validity of Subrule (3A) of Rule 8 of Central Excise Rules, 2002: The petitioners challenged the orders based on Subrule (3A) of Rule 8, which mandates that in case of default in payment of excise duty beyond 30 days, the assessee must clear goods on actual payment of duty without availing Cenvat Credit. This provision was scrutinized for its reasonableness and constitutionality. The Court, in Indsur Global Ltd. v. Union of India, declared the portion of the rule requiring payment without utilizing Cenvat Credit as ultra vires and unconstitutional. The Court observed that the rule did not differentiate between willful defaulters and those defaulting due to financial constraints, thus imposing an unreasonable and harsh restriction on the right to carry on business under Article 19(1)(g) of the Constitution. The rule was deemed to create an undue burden on assessees, making it virtually impossible for them to recover from financial difficulties, thus violating Article 14 of the Constitution. 2. Legality of the Adjudicating Authority's Order Dated 27.07.2010 and the Appellate Order Dated 21.12.2010: The adjudicating authority issued a showcause notice and subsequently confirmed the duty demand with interest and penalties, which was upheld by the appellate authority. These orders were based on the invalidated portion of Subrule (3A) of Rule 8. The Court noted that since the orders were founded on a rule that was declared unconstitutional, they could not survive. The reliance on the invalidated portion of the rule rendered the orders null and void. 3. Utilization of Cenvat Credit for Payment of Interest on Delayed Excise Duty: The petitioners paid interest on delayed excise duty using Cenvat Credit, which the department deemed irregular based on Subrule (3A) of Rule 8. The Court found that the petitioners' subsequent clearances were stigmatized solely because of this payment method. Given that the requirement to pay without utilizing Cenvat Credit was struck down, the petitioners' use of Cenvat Credit for interest payment could not be considered irregular. The Court emphasized that the facts of the case fell squarely within the invalidated portion of the rule, thus invalidating the department's stance. Conclusion: The impugned orders were set aside, and the petition was allowed. The Court held that the orders based on the unconstitutional portion of Subrule (3A) of Rule 8 could not stand, thereby making the rule absolute.
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