2020 (1) TMI 189 - AT - Central Excise

Vires of Rule 8(3A) of the Central Excise Rules, 2002 - Default of monthly payment of duty - denial of utilization of Cenvat credit under Rule 8(3A) of the Central Excise Rules, 2002 - period September, 2009 to August, 2010 - HELD THAT - In the case of Indsur Global Ltd 2014 (12) TMI 585 - GUJARAT HIGH COURT the Hon ble High Court of Gujarat has struck it down as unconstitutional. This judgment of the Hon ble High Court of Gujarat has been stayed by the Hon ble Apex Court. Similar decision was taken by the Hon ble High Court of Gujarat in the case of Shreeji Surface Coatings Pvt Ltd (supra) and it does not appear that this order has been struck down or stayed by the Hon ble Supreme Court. However, an appeal against this appears to have been admitted by the Hon ble Apex Court. In the case of Malladi Drugs Pharmaceuticals Ltd (supra) a batch of writ petitions filed by various parties were decided by the Hon ble High Court of Madras striking down Rule 8(3A) as ultra vires. At least four different High Courts have struck down the constitutional validity of Rule 8(3A) of Central Excise Rules, 2002 and appeals against such judgments have been admitted by the Hon ble Supreme Court and have yet to be decided. There was a stay in one case i.e., Indsur Global Ltd (supra) only but there was no stay in respect of the other judgments - What needs to be decided in this factual matrix is where there are judgments by four different High Courts holding Rule 8(3A) as ultra vires and there is no judgment of any High Court upholding it and where the appeals against these judgments have been admitted and are under consideration of the Hon ble Apex Court, whether the ratio of these judgments bind this tribunal or otherwise. We find that the last in the series of judgments was passed by the Hon ble High Court of Bombay in the case of Nashik Forge Pvt Ltd (supra) on 17.09.2018 holding that the ratio of the judgment of the Hon ble High Court of Madras, Gujarat and Punjab Haryana apply. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Default in monthly payment of duty and denial of utilization of Cenvat credit under Rule 8(3A) of the Central Excise Rules, 2002.

Analysis:
1. The appellant, a manufacturer of LPG Cylinders, failed to pay the Central Excise duties within one month from the due date, leading to the department issuing show cause notices and demanding Central Excise duty in cash, denying Cenvat credit utilization as per Rule 8(3A) of Central Excise Rules, 2002. The demands included interest and penalties under section 11A and Rule 25 of Central Excise Rules, 2002.

2. The appellant argued that Rule 8(3A) was unconstitutional based on judgments by various High Courts, including Gujarat, Madras, Bombay, and Punjab & Haryana. Despite a stay on the Gujarat High Court judgment by the Supreme Court, the appellant contended that the underlying reasoning of the judgment still applied, citing the Space Telelink Ltd case law.

3. The departmental representative highlighted that once a superior court stays a judgment or admits an appeal, the ratio decidendi of the lower court is in jeopardy, referencing the West Coast Paper Mills Ltd case. The department argued that the stay on the Gujarat High Court judgment affected its validity.

4. The Tribunal examined the vires of Rule 8(3A) in light of the conflicting judgments. While the Gujarat High Court had struck down the rule as unconstitutional, the Supreme Court had stayed the judgment. However, no stay was issued against similar decisions by other High Courts. The Tribunal followed the decision of the Bombay High Court, holding that the demand was unsustainable, setting it aside along with the imposed penalties.

5. Ultimately, the Tribunal allowed the appeals, setting aside the impugned order and providing consequential relief to the appellant. The decision was pronounced in open court on 03.01.2020.