Cenvat credit after duty default under Rule 8(3A) remained disputed, while penalty was limited for stay purposes.

Rule 8(3A) was treated as imposing a mandatory restriction after default in duty payment, under which one view required duty to be cleared consignment-wise through PLA and prohibited utilisation of Cenvat credit until outstanding duty and interest were paid. The contrary view considered later Cenvat utilisation sufficient for interim purposes. The bench therefore referred the issue because the members differed on the permissibility of using Cenvat credit after default. On penalty, both views accepted liability, but secured only a limited amount for the stay arrangement, confining the deposit to Rs. 5,000.

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Issues: (i) Whether, after default in payment of duty under Rule 8, the assessee could clear goods by utilising Cenvat credit instead of paying through PLA. (ii) Whether penalty was sustainable and, if so, to what extent.

Issue (i): Whether, after default in payment of duty under Rule 8, the assessee could clear goods by utilising Cenvat credit instead of paying through PLA.

Analysis: One view held that Rule 8(3A) created a clear bar against utilisation of Cenvat credit after default and required duty to be paid consignment-wise through the account current until the outstanding duty and interest were discharged. Reliance was placed on the statutory language and on the Gujarat High Court view that payment through any mode other than PLA during the forfeiture period was not permissible. The contrary view treated the later utilisation of Cenvat credit as sufficient for interim stay purposes, on the footing that the dispute had earlier been considered by Tribunal decisions holding that revenue loss was confined to interest.

Conclusion: The members took divergent views on this issue and no final majority determination was recorded.

Issue (ii): Whether penalty was sustainable and, if so, to what extent.

Analysis: Both views accepted that penalty was attracted, but the quantum was confined to the amount proposed under Rule 27, namely Rs. 5,000, for the interim order. The reasoning proceeded on the basis that the penalty issue stood covered by the settled legal position and did not require a larger deposit at the stay stage.

Conclusion: Penalty was directed to be secured only to the extent of Rs. 5,000.

Final Conclusion: The order resulted in a reference because the members differed on the permissibility of using Cenvat credit after default under Rule 8, while the penalty component was restricted to a limited deposit for the stay arrangement.

Ratio Decidendi: Rule 8(3A) was treated as imposing a mandatory restriction on utilisation of Cenvat credit after default, but the bench did not return a single final majority ruling on the point.

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