2014 (12) TMI 655 - HC - Central Excise

Challenge to the vires of Sub rule (3A) of Rule 8 of the Central Excise Rules, 2002 - assessee has not paid monthly excise duty by due date and has further defaulted by period of 30 days thereafter - Decision in the case of Indsur Global Ltd. 2014 (12) TMI 585 - GUJARAT HIGH COURT relied upon by Revenue - Held that - there is vital difference between the two sets of facts. In the present case, the petitioner had raised the challenge to the statutory provisions even before the adjudicating authority had taken a final decision. He had, along with rule, also challenged the show cause notice. In the case of Indsur Global Ltd. (Supra) the petitioner had unsuccessfully challenged the order of the adjudicating authority. The appeal was dismissed by the Commissioner on the ground of delay beyond his power to condone. The Tribunal had dismissed further appeal on the ground of gross delay of three years in preferring the appeal before the Tribunal as also on the ground that in any case the Commissioner was right in not entertaining the appeal of the assessee which was presented along with the application for condonation of delay after the maximum period which the Commissioner could have condoned. It was in this background the Court held that the issues which are closed cannot be reopened. It was noted that there were other proceedings between the same assessee and department pending at various stages on same issue. It was, therefore, provided that the particular order in challenge would not be disturbed but that the benefit of declaration of invalidity of the rule would be available to the petitioner in other pending proceedings. Modus adopted in the said case in case of Indsur Global Ltd. (Supra) cannot be applied in the present case. The impugned tax demands and show cause notice are set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Challenge to the vires of Sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002.
2. Challenge to the communications dated 09.09.2008 and 12.09.2008 raising duty demands.
3. Challenge to the show cause notice proposing to levy excise duty with interest and penalty.

Issue-wise Detailed Analysis:

1. Challenge to the Vires of Sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002:
The petitioners challenged the vires of Sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, which mandates that an assessee who defaults on monthly excise duty payments must pay excise duty on every individual clearance without utilizing Cenvat Credit. The court referenced a prior judgment in Indsur Global Ltd. v. Union of India, where it was held that the condition requiring payment of excise duty "without utilizing Cenvat credit" is ultra vires and unconstitutional. The court observed that the restriction imposed by Sub-rule (3A) is unreasonable and violative of Article 14 and Article 19(1)(g) of the Constitution. It was noted that the rule does not distinguish between willful defaulters and those who default due to genuine financial constraints, leading to a harsh and unreasonable restriction that prevents assessees from availing credit for duty already paid. The court concluded that this portion of Sub-rule (3A) must be declared invalid.

2. Challenge to Communications Dated 09.09.2008 and 12.09.2008:
The petitioners also challenged the communications dated 09.09.2008 and 12.09.2008, through which the department raised duty demands based on the impugned Sub-rule (3A). Given that the statutory basis for these communications was declared unconstitutional, the court held that the proceedings initiated through these communications must also be struck down.

3. Challenge to the Show Cause Notice:
The petitioners challenged a show cause notice proposing to levy excise duty of Rs. 1,06,26,770/- with interest and penalty. The court noted that when the statutory basis for the issuance of a show cause notice is invalidated, the notice itself and any subsequent actions based on it must be set aside. The court also addressed the revenue's argument that a final order had been passed by the adjudicating authority during the pendency of the petition and had not been challenged. However, the court distinguished this case from Indsur Global Ltd., where the challenge to the adjudicating authority's order had failed due to procedural delays. In the present case, the petitioners had raised the challenge to the statutory provision and the show cause notice before the adjudicating authority's final decision. Therefore, the court concluded that the impugned tax demands and show cause notice must be set aside, and all subsequent actions taken by the department would be nullified.

Conclusion:
The petition is allowed, and the rule is made absolute. The court declared the condition in Sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, requiring payment of duty without utilizing Cenvat credit, as unconstitutional. Consequently, the impugned tax demands, show cause notice, and all subsequent actions taken by the department are set aside.