2016 (5) TMI 746 - AT - Central Excise

Demand of duty and imposition of penalty - Rule 25 of CCR read with section 11 AC of the Act - Restriction on utilisation of Cenvat credit as provided under Rule 8 (3A) of CER - Held that - the issue is no longer res integra as it is evident that Hon ble Gujarat High Court in the case of Indsur Global Limited Vs. Union of India 2014 (12) TMI 585 - GUJARAT HIGH COURT , the portion of the Rule without utilising the Cenvat credit of sub Rule 3(A) of Rule 8 of Central Excise Rules, 2002 as invalid and ultra-vies under article 14 & 19 (1)(g) of the Constitution of India. Therefore, by following the same, the appellant succeeded. - Decided in favour of appellant with consequential relief

Issues Involved:
1. Default in payment of duty for January and February 2012.
2. Utilisation of Cenvat credit during the default period.
3. Imposition of penalty under Rule 25 of CCR read with Rule 8(3A) and Section 11AC of the Act.
4. Validity of Rule 8(3A) of CER under Articles 14 and 19(1)(g) of the Constitution.

Issue-wise Detailed Analysis:

1. Default in Payment of Duty:
The appellant assessee defaulted in paying the duty for January and February 2012 by the due dates. The duty was subsequently paid with interest on 4th March 2012. The table provided in the judgment indicates the amounts of duty payable, paid, and the dates of payment, highlighting the arrears and subsequent payments.

2. Utilisation of Cenvat Credit:
The revenue contended that the appellant could not utilise the Cenvat credit as per Rule 8(3A) of the Central Excise Rules (CER), 2002, which mandates that a defaulter must pay duty without availing Cenvat credit. The appellant argued that this rule was unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution. The appellant cited the Gujarat High Court's decision in Indsur Global Limited vs. Union of India, which declared the condition of "without utilising the Cenvat credit" in Rule 8(3A) as unconstitutional.

3. Imposition of Penalty:
The adjudicating authority confirmed the demand and imposed an equal amount of penalty under Rule 25 of CCR read with Section 11AC of the Act. The appellant contested this imposition, arguing that the rule itself was invalid.

4. Validity of Rule 8(3A) of CER:
The appellant relied on the Gujarat High Court's ruling in Indsur Global Limited, which held that the condition in Rule 8(3A) requiring payment of duty without utilising Cenvat credit was unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution. The Gujarat High Court observed that the rule imposed a harsh and disproportionate restriction on assessees, preventing them from availing credit for duty already paid, thus affecting their right to carry on business. The court also noted that the rule did not distinguish between willful defaulters and those defaulting due to financial constraints.

The appellant also cited similar rulings from the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. vs. Union of India and the Punjab & Haryana High Court in Sandley Industries vs. Union of India, which followed the Gujarat High Court's decision and held that the right to utilise Cenvat credit cannot be taken away by procedural rules.

Conclusion:
The Tribunal, considering the rival contentions and following the law pronounced by the Gujarat High Court, allowed the appeal. It held that the facts of the present case were squarely covered by the Gujarat High Court's ruling in Indsur Global Limited, thereby granting consequential benefits to the appellant. The Tribunal pronounced the judgment in the open court, allowing the appeal and setting aside the impugned order.

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