Unenforceable CENVAT credit restriction under Rule 8(3A) cannot support duty demand, interest or penalty during default.

Rule 8(3A) of the Central Excise Rules, 2002, which barred utilisation of CENVAT credit during a duty default period, was treated as unenforceable because the underlying restriction had been held unconstitutional. As a result, demands, interest and penalty founded solely on denial of CENVAT credit utilisation could not survive. The commentary notes that the impugned order was set aside and that revenue could still pursue interest in accordance with law.

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Issues: Whether the bar on utilisation of CENVAT credit under Rule 8(3A) of the Central Excise Rules, 2002, and the consequent demand, interest and penalty were sustainable.

Analysis: The appellants were manufacturing goods classifiable under Chapter 39 of the Central Excise Tariff Act, 1985 and had defaulted in monthly duty payment. The adjudicating authority had disallowed utilisation of the CENVAT account during the default period under Rule 8(3A) of the Central Excise Rules, 2002 and confirmed duty, interest and penalty. The Tribunal applied the binding decision holding that the condition in Rule 8(3A) requiring payment of duty without utilising CENVAT credit was unconstitutional and that the expression "without utilizing the CENVAT Credit" could not be enforced.

Conclusion: The impugned order was unsustainable and was set aside; the appeal was allowed with consequential relief.

Final Conclusion: The demand founded on denial of CENVAT credit utilisation under Rule 8(3A) could not survive, while the revenue was left at liberty to pursue interest in accordance with law.

Ratio Decidendi: A condition in Rule 8(3A) of the Central Excise Rules, 2002 that prohibits utilisation of CENVAT credit for payment of duty during default is unenforceable once declared unconstitutional, and consequent demands based solely on that restriction cannot stand.

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