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2015 (10) TMI 2455 - HC - Central ExciseConstitutional validity of Rule 8(3A) of the 2002 Rules - Disallowance of the benefit of adjustment of CENVAT credit lying unutilised in its account by issuing show cause notices - Held that - Rule 8(3A) of the 2002 Rules to the extent it contains the words without utilizing the CENVAT Credit is held to be arbitrary and unreasonable and is struck down. In other words, the unamended Rule 8(3A) of 2002 Rules whereby the benefit of CENVAT Credit for all the period till the actual payment was made, stands disallowed in the event of a minor default also is arbitrary and unreasonable. It may further be noticed that the respondents had themselves realized the unreasonableness of the provisions of Rule 8 (3A) of 2002 Rules and had withdrawn the words without utilizing the benefit of CENVAT Credit and had amended the same w.e.f 11.7.2014 by incorporation that now a penalty shall be imposed at the rate of 1% of the defaulted amount for each month or part thereof calculated from the due date. - Decision in the case of Indsur Global Limited & Precision Fasteners Limited s cases (2014 (12) TMI 585 - GUJARAT HIGH COURT) and Malladi Drugs and Pharmaceuticals Limited s case (2015 (5) TMI 603 - MADRAS HIGH COURT) followed - matter remanded back - Decided in favour of assessee.
Issues Involved:
1. Violation of Rule 8(3A) of the Central Excise Rules, 2002. 2. Constitutionality of Rule 8(3A) of the Central Excise Rules, 2002. 3. Impact of amendments to Rule 8(3A) effective from 11.07.2014. 4. Validity of show cause notices and demand orders issued under the unamended Rule 8(3A). Detailed Analysis: 1. Violation of Rule 8(3A) of the Central Excise Rules, 2002: The petitioner, engaged in the manufacture of zinc and zinc ash, challenged the validity of Rule 8(3A) of the Central Excise Rules, 2002, which mandates that an assessee who defaults in payment of duty beyond 30 days must pay excise duty for each consignment at the time of removal without utilizing CENVAT Credit. The petitioner argued that this rule was arbitrary and confiscatory in nature, especially since the default in duty payment was due to a calculation mistake, which was promptly rectified with interest. 2. Constitutionality of Rule 8(3A) of the Central Excise Rules, 2002: The court examined the constitutionality of the unamended Rule 8(3A) and found it to be unreasonable and violative of Article 14 of the Constitution. The rule did not distinguish between willful defaulters and those who defaulted due to genuine reasons. It imposed a stringent condition of paying excise duty without utilizing CENVAT credit, which was deemed disproportionate to the aim sought to be achieved. The court cited the Gujarat High Court's decision in Indsur Global Limited and the Madras High Court's decision in M/s Malladi Drugs and Pharmaceuticals Limited, which held similar views on the unreasonableness of the rule. 3. Impact of Amendments to Rule 8(3A) Effective from 11.07.2014: The court noted that the unamended Rule 8(3A) was amended on 11.07.2014 to remove the requirement of paying duty without utilizing CENVAT credit. The amended rule imposed a penalty of 1% per month on the defaulted amount. This amendment was seen as an acknowledgment by the legislature of the unreasonableness of the previous provision. 4. Validity of Show Cause Notices and Demand Orders Issued Under the Unamended Rule 8(3A): The court held that show cause notices and demand orders issued under the unamended Rule 8(3A) were invalid to the extent they disallowed the utilization of CENVAT credit. The court directed that the competent authority should pass fresh orders, excluding the words "without utilizing the benefit of CENVAT Credit" from Rule 8(3A). The court also quashed the impugned Panchnama attaching the petitioner's movable property and directed the competent authority to proceed in light of the court's observations. Conclusion: The court allowed the petitions, declaring the unamended Rule 8(3A) of the Central Excise Rules, 2002, to be arbitrary and unreasonable. It directed the competent authority to pass fresh orders in accordance with the amended rule and the court's observations, thereby setting aside the impugned orders and remanding the matters for fresh adjudication.
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