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TMI Blog2015 (5) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore violative of Article 14. The right that has accrued to an assessee by way of CENVAT credit, that is duty paid on the inputs, cannot be taken away under a rule, which only provides for the manner and method of payment of duty and for levying of interest, if there is a default - It is a legitimate right that has accrued to an assessee and that cannot be denied arbitrarily under the provision under challenge. We, therefore, have no hesitation to concur with the reasoning of the Gujarat High Court [2014 (12) TMI 585 - GUJARAT HIGH COURT] that Rule 8(3A) is ultra vires of Article 14 on the ground of arbitrariness. - all the proceedings initiated by the Department in respect of the respective assessees, invoking the said rule by demanding duty along with interest by denying the benefit of CENVAT credit have to be necessarily set aside - Decision in the case of Precision Fasteners Ltd., v. Commissioner of Central Excise [2014 (12) TMI 655 - GUJARAT HIGH COURT] followed - Decided in favour of assessee. - W.P.Nos.2506 of 2011, 20938 of 2009, 20093 to 20103 of 2010, 22314 of 2010, 25236 of 2011, 28678 of 2011, 1864 of 2012, 4486 of 2009, 4487 of 2009, 19893 of 2010, 19894 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 15586 of 2013 have challenged the final orders passed by the original authority and the petitioner-assessee in W.P.No.1864 of 2012 has challenged the interim order passed by the appellate authority in demanding the pre-deposit of the entire duty along with interest for entertaining the appeal. 2. The primary ground of challenge made in this batch of writ petitions is that Rule 8(3A) of the Central Excise Rules,2002 is unconstitutional, totally arbitrary, irrational, oppressive and contrary to the power delegated to the rule making authority. Several facets of the challenge to the said rule was considered by a Division Bench of the Gujarat High Court in the case of Indsur Global Ltd., v. Union of India, 2014 (310) E.L.T.833 (Guj.), wherein the Court declared that the 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 unconstitutional. To be more precise, the Court held as follows:- ''36. In the result, the condition contained in sub-rule (3A) of Rule 8 for payment of duty without utilizing the Cenvat credit till an assessee pays the outstanding amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty. Likewise, section 11A which pertains to recovery of duties not levied or not paid or short levied or short paid or erroneously refunded makes a clear distinction when it gives the period of limitation available to the department to institute proceedings, in such cases between such non-payment having been occasioned due to fraud, collusion, etc. in which case a longer period of limitation is available as against rest of the cases. Likewise, under rule 12CC of the Central Excise Rules as it stood at the relevant time, power was given to the Government by notification to withdraw facilities from the manufacturers, registered dealers or exporters under certain circumstances having regard to the extent of evasion of duty, nature and type of offences or such other factors as has been relevant. In exercise of such powers, notification No.17/2006 was issued providing for withdrawal of facilities and for imposition of restrictions against who are prima facie found to be knowingly involved in any of the following: (a) removal of goods without the cover of an invoice and without payment of duty; (b) removal of goods without declaring the correct value for payment of duty, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in every month he would fall behind by the due date unable to raise cash flow for payment of duty for the clearance which he desires to make and is therefore further saddled with the burden of paying such duty in cash without availing CENVAT credit. This rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied. 31. This extreme hardship is not the only element of unreasonableness of this provision. It essentially prevents an assessee from availing cenvat credit of the duty already paid and thereby suspends, if not withdraws, his right to take credit of the duty already paid to the Government. It is true that such a provision is made because of peculiar circumstances the assessee lands himself in. However, when such provision makes no distinction between a willful defaulter and the rest, we must view its reasonableness in the background of an ordinary assessee who would be hit and targeted by such a provision. As held by the Supreme Court in the case of Eicher Motors Ltd (supra) an assessee would be entitled to take credit of input already used by the manufacturer in the final product. In the said case, the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicability of the principle of proportionality in judging the validity of a provision on the touchstone of reasonableness under Article 14 of the Constitution. It was observed: 53. Now under Art. 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the concerned statute permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the Administrator for imposing restriction or whether the Administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc. In such cases, the administrative action in our country, in our view, has to be tested on the principle of 'proportionality,' just as it is done in the case of the main legislation. This, in fact, is being done by our Courts.'' 34. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extent it requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat High Court. We, however, would also like to add our view as to why such a restriction imposed under sub-rule (3A) of Rule 8 of the Central Excise Rules is totally untenable. 4. The availment of CENVAT credit is a right that accrues to an assessee and denial of such credit can be made only by procedure prescribed by the law. The implication of CENVAT credit and the utilisation thereon has been clearly highlighted by the Supreme Court in paragraph-17 of the judgment in Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., 1999 (112) E.L.T.353 (SC), and it reads as follows:- ''17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r levying of interest, if there is a default. The object of the term without utilizing the CENVAT credit'' would run counter to the scheme of availment of the CENVAT credit on the duty paid inputs. It is a legitimate right that has accrued to an assessee and that cannot be denied arbitrarily under the provision under challenge. We, therefore, have no hesitation to concur with the reasoning of the Gujarat High Court that Rule 8(3A) is ultra vires of Article 14 on the ground of arbitrariness. 6. Now coming to the challenge to the proceedings initiated by the Department by invoking Rule 8(3A) of the Central Excise Rules, 2002 and the consequential orders passed by the original authority or appellate authority, as the case may be, in demanding duty along with interest, the Gujarat High Court in the case of Precision Fasteners Ltd., v. Commissioner of Central Excise, 2014-TIOL-2211- HC-AHM-CX, has held as follows:- ''4. When the statutory basis for issuance of a show cause notice and raising tax demand is knocked down, the very proceedings would have to be struck down. 5. Learned counsel Shri Oza for the revenue, however, submitted that during the pendency of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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