2016 (10) TMI 909 - AT - Central Excise

Constitutional validity of Rule 8(3A) of the Central Excise Rules 2002 - Prohibition on assessee from utilising cenvat credit for payment of excise duty for default in payment of duty - discharge of part duty by making use of PLA - a part of the duty payable for the month of August 2008 was not paid by the appellant within the time limit allowed but was paid alongwith interest after delay in the month of November 2008 - whether the duty amount to the tune of about ₹ 12 lakhs already paid by the appellant by making use of Cenvat Credit needs to be demanded to be paid in cash/PLA? - Held that - reliance placed on the decision of the case Indsur Global Ltd. vs. Union of India 2014 (12) TMI 585 - GUJARAT HIGH COURT where it was held that Condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion without utilizing the cenvat credit of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid. I find that there is no justification to proceed with the demand made under Rule 8 (3A) by the authorities below in as much as the Rule itself has been stuck down as unconstitutional - appeal allowed - facility of using Cenvat credit for making payment of excise duty cannot be denied - decided in favor of appellant.

Summary

Issues:
1. Default in payment of excise duty.
2. Application of Rule 8(3A) of the Central Excise Rules, 2002.
3. Constitutional validity of Rule 8(3A).
4. Interpretation of Rule 8(3A) in light of High Court judgments.
5. Adverse view of Rule 8(3A) by various High Courts.
6. Decision on the demand made under Rule 8(3A).

Issue 1: Default in payment of excise duty

The appellant, a manufacturer of modified starch and chemicals, failed to pay the balance amount of duty in August 2008, leading to a deemed default by the Revenue. The Revenue invoked Rule 8(3A) of the Central Excise Rules, 2002, to deny the use of Cenvat credit for duty payment during a specific period, despite the appellant later discharging the dues in full.

Issue 2: Application of Rule 8(3A) of the Central Excise Rules, 2002

Rule 8(3A) states that if an assessee defaults in duty payment beyond 30 days, they must pay duty without utilizing Cenvat credit until the outstanding amount is paid. The question was whether the duty amount already paid using Cenvat credit, totaling around ?12 lakhs, needed to be demanded in cash/PLA, as done by the authorities.

Issue 3: Constitutional validity of Rule 8(3A)

The appellant argued that Rule 8(3A) was unconstitutional, citing judgments from various High Courts that declared the provision invalid. Notably, the Gujarat High Court held that the condition of paying duty without using Cenvat credit until the outstanding amount is paid is unconstitutional.

Issue 4: Interpretation of Rule 8(3A) in light of High Court judgments

High Courts, including Gujarat, Chennai, and Madras, had taken an adverse view of Rule 8(3A), challenging its constitutionality. The Tribunal considered these judgments, noting the conflicting interpretations regarding the mandatory application of the rule.

Issue 5: Adverse view of Rule 8(3A) by various High Courts

The Tribunal acknowledged the differing opinions of various High Courts on the validity of Rule 8(3A). While the Gujarat High Court declared a portion of the rule unconstitutional, other High Courts had not stayed their decisions, creating legal uncertainty on the application of the rule.

Issue 6: Decision on the demand made under Rule 8(3A)

Considering the unconstitutional status of Rule 8(3A as per High Court judgments, the Tribunal found no justification to uphold the demand made by the authorities under this rule. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief, emphasizing the invalidity of the rule and the appellant's compliance with duty payment using Cenvat credit.

This detailed analysis of the judgment highlights the issues of default in duty payment, the application and constitutionality of Rule 8(3A), and the impact of High Court decisions on the interpretation and enforcement of the rule. The Tribunal's decision to set aside the demand under Rule 8(3A) based on the unconstitutionality established by various High Courts underscores the legal complexities surrounding excise duty payment regulations and judicial scrutiny of such provisions.