2015 (9) TMI 1146 - AT - Central Excise

Tribunal rules Central Excise Rule 8(3A) unconstitutional, violating Article 14. Assessee's appeal allowed, proceedings closed.

Commissioner of Central Excise, Chennai-II Versus Sai Mirra Innopharm Pvt. Ltd. and vice versa

The Tribunal held that Rule 8(3A) of the Central Excise Rules, demanding duty without utilizing CENVAT credit, was unconstitutional and violated Article ... Applicability of Rule 8 (3A) - payment of excise duty on consignment basis - Held that:- High Court in the case of Malladi Drugs & Pharmaceuticals Ltd. - [2015 (5) TMI 603 - MADRAS HIGH COURT] struck down the Rule 8(3A) as ultra vires. - Tribunal in a batch of appeals in the case of Cheran Cements Ltd. & Others Vs CCE Trichy [2015 (8) TMI 99 - CESTAT CHENNAI] following the Hon'ble High Court's order (supra) allowed the assessee's appeals and rejected the revenue's appeals. In view of High Court's order (supra) and this Tribunal orders, the order of the adjudicating authority is set aside - Decided in favour of assessee. Issues:1. Applicability of Rule 8(3A) of Central Excise Rules on default payment.2. Constitutional validity of Rule 8(3A) of the Central Excise Rules, 2002.3. Legitimacy of invoking Rule 8(3A) for demanding duty without utilizing CENVAT credit.4. Impact of High Court judgments on proceedings initiated under Rule 8(3A).Analysis:1. The main issue in this case pertained to the applicability of Rule 8(3A) of the Central Excise Rules on default payment. The Tribunal noted that the adjudicating authority had ordered the payment of excise duty on a consignment basis without utilizing CENVAT credit. However, the Hon'ble High Court, in a related case, declared Rule 8(3A) as ultra vires. The Court held that the right accrued by an assessee through CENVAT credit cannot be arbitrarily denied under Rule 8(3A), thereby violating Article 14 of the Constitution. Consequently, the Tribunal set aside the impugned proceedings based on Rule 8(3A).2. The constitutional validity of Rule 8(3A) of the Central Excise Rules, 2002 was a crucial aspect of the judgment. The Court highlighted that the condition in sub-rule (3A) for payment of duty without utilizing CENVAT credit until the outstanding amount is paid was declared unconstitutional by the Gujarat High Court. The Court emphasized that the right to pay duty using accrued CENVAT credit cannot be defeated unless there is illegal or irregular credit. The Tribunal concurred with the reasoning that Rule 8(3A) was arbitrary and violated Article 14 due to its impact on the legitimate rights of the assessee.3. The legitimacy of invoking Rule 8(3A) for demanding duty without utilizing CENVAT credit was extensively discussed. The Tribunal emphasized that the right accrued by an assessee through CENVAT credit, which is duty paid on inputs, cannot be taken away arbitrarily by a rule like 8(3A). It was noted that the provision of paying duty without utilizing CENVAT credit contradicted the scheme of availing CENVAT credit, making it arbitrary and violative of Article 14. As a result, the Tribunal set aside all proceedings initiated by the Department based on Rule 8(3A) in this context.4. The impact of the High Court judgments on proceedings initiated under Rule 8(3A) was significant in this case. The Tribunal, following the High Court's order and its own previous rulings, set aside the order of the adjudicating authority and allowed the assessee's appeal while rejecting the Revenue's appeal. The Tribunal emphasized that all proceedings initiated under Rule 8(3A) demanding duty without utilizing CENVAT credit had to be necessarily set aside in line with the High Court's judgment. Consequently, the writ petitions were allowed, and the impugned proceedings were closed without any order as to costs.