2024 (11) TMI 343 - AT - Central Excise

Contravention of provisions of Rule 8(3A) of the Central Excise Rules, 2002 - failure to make full payment of duty within prescribed time limit as provided under Rule 8 of Central Excise Rules, 2002 - bar on utilization of CENVAT credit for payment of duty - invocation of Extended period of limitation - penalty - HELD THAT - The issue as to whether the Assessee can utilise the CENVAT credit toward payment of duty when in default is no more res integra and many judicial authorities have held that the provision of Rule 8(3A) of Central Excise Rules, 2002 as ultravires to the Main Act. The Hon ble Gujarat High Court in the case of INDSUR GLOBAL LTD. VERSUS UNION OF INDIA 2 2014 (12) TMI 585 - GUJARAT HIGH COURT struck down the condition in Rule 8(3A) for payment of duty without utilizing the CENVAT credit as unconstitutional and invalid. The Hon ble High Court of Bombay in the case of THE COMMISSIONER OF CENTRAL EXCISE CUSTOMS NASHIK II COMMISSIONERATE VERSUS M/S. NASHIK FORGE PVT. LTD. 2018 (9) TMI 1582 - BOMBAY HIGH COURT has held that Rule 8(3A) to be unconstitutional as it infringes upon the substantive right of an assessee to utilize Cenvat credit. Further, the Tribunal in the case of INDUS TROPICS LTD VERSUS C.C.E. S.T. -RAJKOT 2023 (3) TMI 950 - CESTAT AHMEDABAD has followed the decisions of various High Court to set aside the demand alleging violation of Rule 8(3A) of Central Excise Rules, 2002. The appeal was referred to the Lok Adalat proceedings before the Hon ble Supreme Court and settlement has been arrived at. The effect is that the stay order having merged with the order of settlement, stands vacated. The decision rendered by the Hon ble High Courts of Gujarat and Madras in the above cases would revive and be in force as a Precedent. The demand raised alleging violation of Rule 8(3A) cannot sustain and requires to be set aside - Appeal allowed.

Summary

Issues:
1. Whether the demand as confirmed for violation of Rule 8(3A) against the Appellant-A1 is sustainable in law?
2. Whether the demand can be raised invoking the extending period and imposition of penalty is justified?

Analysis:

Issue 1:
The main issue in the appeals was whether the Appellant-A1, who defaulted in payment of duty, could utilize CENVAT credit for payment of duty as per Rule 8(3A) of the Central Excise Rules, 2002. The department alleged non-payment of excise duty and belated filing of ER 1 returns, leading to a demand for Central Excise Duty. The Appellant argued that Rule 8(3A) was declared unconstitutional by various High Courts, rendering the demand unsustainable. The Hon'ble Tribunal and multiple High Courts held that Rule 8(3A) was ultra vires and unconstitutional, allowing the Assessee to utilize CENVAT credit even in case of default.

Issue 2:
Regarding the imposition of penalties and extending the period for demand, the Appellant contended that there was no intention to evade payment of duty, citing financial hardships and reliance on CBEC circulars. The Appellant also argued that the demand was revenue neutral and penalties under the Central Excise Act were not applicable in cases of wrong availment of CENVAT credit. The Tribunal, following precedent judgments, held that the demand based on Rule 8(3A) was unsustainable, leading to the setting aside of the impugned order and allowing the appeals with consequential relief.

The judgment emphasized the unconstitutionality of Rule 8(3A) and the Assessee's right to utilize CENVAT credit even in cases of default. The decision was based on various High Court rulings and the settlement of a related appeal at the Supreme Court level. Ultimately, the demand for Central Excise Duty and penalties under Rule 8(3A) were deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeals.