Invalid restriction on CENVAT credit during duty default cannot sustain demand or penalty when the rule is unenforceable.

Rule 8(3A) of the Central Excise Rules, 2002, which restricted utilisation of CENVAT credit during a duty default period, could not support a demand or penalty once that condition had been declared unconstitutional and unenforceable by the Gujarat High Court. The document notes that the assessee had used CENVAT credit during the default period, but the adverse demand was based on a rule provision that no longer survived in law. On that basis, the impugned order was set aside and the appeal was allowed in favour of the assessee.

---

---

Issues: Whether the restriction under Rule 8(3A) of the Central Excise Rules, 2002, preventing utilization of CENVAT credit during the default period, could be sustained and the demand confirmed on that basis.

Analysis: The appellants had defaulted in monthly payment of duty and had utilized CENVAT credit during the relevant period. The Tribunal noted that the Gujarat High Court had already declared the condition in Rule 8(3A), to the extent it required payment of duty without utilizing CENVAT credit, to be unconstitutional and invalid. Once that portion of the rule had been rendered unenforceable, the demand and penalty based on its violation could not survive.

Conclusion: The impugned order was held unsustainable and was set aside, with the appeal allowed in favour of the assessee.

Ratio Decidendi: A demand or penalty based on the invalidated restriction against utilizing CENVAT credit under Rule 8(3A) cannot be sustained.

---