2015 (5) TMI 661 - HC - Central Excise

High Court allows appeal challenging excise duty payment using CENVAT credit, deems Rule 8(3A) unconstitutional.

The appellant challenged the Tribunal's decision regarding the payment of excise duty using CENVAT credit under Central Excise law. The High Court ruled ... Utilization of CENVAT Credit for payment of duty - Applicability of Rule 8(3A) of Central Excise Rules - Held that:- condition contained in sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 for payment of duty without utilizing the CENVAT credit till an assessee pays the outstanding amount including interest is unconstitutional and that the subsequent proceedings initiated by the Department for demanding tax were set at naught, which were followed by us in a batch of writ petitions in [2015 (5) TMI 603 - MADRAS HIGH COURT] (M/s Malladi Drugs & Pharmaceuticals Ltd., Ranipet etc., etc., v. Union of India rep. by its Secretary, Ministry of Finance etc.) deciding the issue in favour of the assessees therein for the reasons stated therein, following the same - Decided in favour of assessee. Issues:1. Validity of payment of duty utilizing CENVAT credit under Central Excise law2. Applicability of Rule 8(3A) of Central Excise Rules introduced from 1.6.20063. Jurisdiction of the second respondent to adjudicate the case invoking Rule 8(3A)4. Justification of the Tribunal in retaining penalty under Rule 25 of Central Excise RulesIssue 1: Validity of payment of duty utilizing CENVAT credit under Central Excise lawThe appellant challenged the Tribunal's order, which held that a defaulting assessee must pay excise duty without utilizing CENVAT credit until the outstanding amount is paid, as per the amendment to Central Excise Rules in 2006. The Tribunal found the appellant continued to use CENVAT credit instead of paying duty through PLA, leading to the demand being sustained. The Tribunal set aside the penalty under Section 11AC but retained the penalty under Rule 25, reducing it to Rs. 5,00,000. The Tribunal partly allowed the appeal, emphasizing the requirement to pay duty without utilizing CENVAT credit until the outstanding amount is settled.Issue 2: Applicability of Rule 8(3A) of Central Excise Rules introduced from 1.6.2006The High Court referred to judgments by the Gujarat High Court declaring the condition in Rule 8(3A) for payment of duty without using CENVAT credit until the outstanding amount is paid as unconstitutional. The High Court followed these judgments in a batch of writ petitions, deciding in favor of the assessees. Consequently, the High Court allowed the appeal, answering the substantial questions of law in favor of the assessee and against the Department, thereby closing the related application with no costs.Issue 3: Jurisdiction of the second respondent to adjudicate the case invoking Rule 8(3A)The High Court's decision, based on precedents from the Gujarat High Court and its own batch of writ petitions, concluded that the second respondent's adjudication invoking Rule 8(3A) for demanding tax when there was no default in payment of duty during the specified period was not valid. The High Court's judgment favored the assessee, aligning with the earlier rulings on the unconstitutionality of the provision regarding payment of duty without utilizing CENVAT credit until the outstanding amount is paid.Issue 4: Justification of the Tribunal in retaining penalty under Rule 25 of Central Excise RulesThe Tribunal's decision to retain the penalty under Rule 25 but reduce it to Rs. 5,00,000 while setting aside the penalty under Section 11AC was examined. The High Court upheld the Tribunal's action, emphasizing the requirement for a defaulting assessee to pay excise duty without utilizing CENVAT credit until the outstanding amount is settled. The High Court's decision aligned with previous judgments declaring the provision in Rule 8(3A) as unconstitutional, thereby influencing the outcome of the penalty retention under Rule 25.This comprehensive analysis of the judgment highlights the key issues raised, the Tribunal's decision, the High Court's interpretation, and the impact of previous judgments on the final outcome of the case.