Rule 8(3A) bars Cenvat credit after duty default, while an unchallenged order under the rule attains finality and penalty may be reduced.

After default in payment of excise duty, Rule 8(3A) required the assessee to clear the liability in cash or through PLA for the prescribed period, and payment through Cenvat credit was impermissible under the post-amendment regime. An order passed by the jurisdictional Assistant Commissioner under that rule had attained finality because no appeal was filed, and the earlier Larger Bench view was held inapplicable on those facts. The duty and interest demand was therefore sustained, while the penalty was moderated on equitable considerations and reduced to a lower amount.

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Issues: (i) Whether, after default in payment of excise duty, the assessee was bound to pay duty in cash or through PLA under Rule 8(3A) of the Central Excise Rules, 2002 and could not discharge the liability by utilising Cenvat credit; (ii) Whether the penalty imposed required interference and reduction.

Issue (i): Whether, after default in payment of excise duty, the assessee was bound to pay duty in cash or through PLA under Rule 8(3A) of the Central Excise Rules, 2002 and could not discharge the liability by utilising Cenvat credit.

Analysis: The defaulted duty was required to be paid in the manner prescribed by Rule 8(3A), which, after the amendment referred to in the order, mandated payment in cash or from PLA for the specified period. The order passed by the jurisdictional Assistant Commissioner under that rule had attained finality since no appeal was filed against it. In that situation, payment through Cenvat credit was not permissible, and the reliance placed on the earlier Larger Bench view was held inapplicable to the post-amendment regime.

Conclusion: The demand of duty and interest was upheld against the assessee.

Issue (ii): Whether the penalty imposed required interference and reduction.

Analysis: Although the assessee's conduct justified penal consequences for non-compliance with the statutory payment requirement, the quantum was found capable of moderation to meet the ends of justice. The Tribunal therefore interfered only to the extent of reducing the penalty amount.

Conclusion: The penalty was reduced from Rs. 5 lakhs to Rs. 1 lakh.

Final Conclusion: The assessee remained liable for duty and interest for having discharged the liability through an impermissible mode, but obtained limited relief only in the matter of penalty.

Ratio Decidendi: Where Rule 8(3A) of the Central Excise Rules, 2002 requires payment of duty in cash or PLA after default, discharge through Cenvat credit is impermissible and an unchallenged order passed under that rule attains finality.

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