2015 (10) TMI 1842 - AT - Central Excise

Delay in payment of duty - payment of duty without utilizing the cenvat credit - Held that - This being a small scale unit, the appellant assessee was paying excise duty on monthly basis as per Rule 173 G of CER, 1944 from 01.04.2000. SCN No. 692/2003 dated 16.06.2003 was issued based on the amendment to Rule 173G (I) (e) w.e.f. 11.02.2001, which was later substituted by Rule 8 of CER, 2001. It cannot be disputed that the provision of Rule 8(4) are pari materia with Rule 173 G (I) (e) and the non-obstantive clause was introduced by insertion of sub-rule 3A in Rule 8 of CER, 2002 only w.e.f. 31.03.2005, while the period in dispute in the present case is prior to that date. - condition contained in sub-rule (3A) of Rule 8 of CER, 2002 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is unconstitutional and that the subsequent proceedings initiated by the department for demanding tax was set at naught. - condition contained in Rule 8 (3A) of CER, 2002 for payment of duty without utilization of cenvat credit is contrary to the scheme of availment of cenvat credit under CCR and the said Rule 8 (3A) is arbitrary and violative of Article 14 of the Constitution. Accordingly, the Hon ble High Court has struck down the Rule 8 (3A) as unconstitutional. The jurisdictional Hon ble Madras High Court s ruling is binding on the jurisdictional adjudicating authority and also binding on this Tribunal. - demand of duty under Rule 8 (3A) is unsustainable as the said Rule has been struck down by the Hon ble High Courts 2015 (5) TMI 603 - MADRAS HIGH COURT and the demand of duty and penalty imposed in the impugned order is liable to be set aside - Decided in favour of assessee.

Summary

Issues:
1. Whether cenvat credit can be utilized for the payment of duty during a defaulted period.
2. Validity of Rule 8(3A) of the Central Excise Rules, 2002.
3. Applicability of penalties for non-payment of excise duty.

Issue 1:
The appellant, a drug manufacturer, defaulted in duty payments and used cenvat credit for payment. The contention was that the change in law requiring payment through PLA did not apply to them. The Tribunal considered past judgments and held that during the default period, the appellant could use cenvat credit for duty payment. The High Court's rulings on similar cases were cited, supporting the appellant's position. The Tribunal, following precedent, allowed the appeal, setting aside the duty demand and penalties.

Issue 2:
The validity of Rule 8(3A) of the Central Excise Rules, 2002 was challenged. The appellant argued that this rule, restricting cenvat credit use until all outstanding amounts are paid, was unconstitutional and violated Article 14 of the Constitution. The Tribunal referred to High Court decisions that declared Rule 8(3A) as arbitrary and unconstitutional. Relying on these judgments, the Tribunal held that the demand under Rule 8(3A) was unsustainable, and the penalties imposed were set aside.

Issue 3:
The question of penalties for non-payment of excise duty was addressed. The Assistant Commissioner argued against using cenvat credit for duty payment during default, emphasizing Rule 8(3A) provisions. However, the Tribunal, based on High Court rulings, found Rule 8(3A) unconstitutional and held that penalties imposed were not valid. The Tribunal allowed the appeal, rejecting the duty demand and penalties, in line with the High Court decisions.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, and the Tribunal's decision based on legal precedents and constitutional validity.