CENVAT credit and cash demand under Rule 8(3A) held unsustainable after invalidation of the restrictive phrase.

Duty payment made from the CENVAT account during the default period under Rule 8(3A) of the Central Excise Rules, 2002 was held not to justify confirmation of duty demand in cash where the Gujarat High Court had already declared the phrase "without utilizing the CENVAT Credit" invalid. On that basis, the cash demand was treated as unsustainable and the penalty fell with it because the legal foundation for penal action had ceased to exist. Interest was not decided on the merits and was left open to be pursued by the Revenue if consignment-wise delay in payment was established.

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Issues: Whether duty paid from the CENVAT account during the default period contrary to Rule 8(3A) of the Central Excise Rules, 2002 justified confirmation of duty demand in cash and imposition of penalty.

Analysis: The default in payment of duty was examined in the light of the Gujarat High Court decision holding the expression "without utilizing the CENVAT Credit" in Rule 8(3A) of the Central Excise Rules, 2002 to be invalid. In view of that declaration of invalidity, the demand requiring cash payment was treated as unsustainable. Since the legal foundation of the demand had fallen, penalty was also held to be unwarranted. The question of interest was left open to be raised by the Revenue if delay in consignment-wise payment was established.

Conclusion: The demand of duty in cash and the penalty were set aside, and the appeals were allowed.

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