Cenvat credit payment during default period cannot be denied where the underlying restriction is unconstitutional.

During the default period preceding the non obstante clause in Rule 8(3A), the assessee was not barred from discharging excise duty through Cenvat credit or PLA. The earlier payment regime did not justify denial of that facility, and the requirement to pay without utilising Cenvat credit had already been treated by High Courts as arbitrary and violative of Article 14. On that basis, the demand of duty, interest, and penalty founded on Rule 8(3A) could not be sustained, and the matter was decided in favour of the assessee.

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Issues: Whether, during the default period, the assessee was barred from paying excise duty through Cenvat credit and whether the consequent demand of duty, interest, and penalty was sustainable.

Analysis: The disputed period preceded the introduction of the non obstante clause in Rule 8(3A) of the Central Excise Rules, 2002. The earlier payment regime under Rule 173G(I)(e) of the Central Excise Rules, 1944 and the corresponding provisions in Rule 8 did not justify denying the assessee the facility of discharging duty liability through PLA or by utilising Cenvat credit. The rule requiring payment without utilising Cenvat credit was also treated as unconstitutional in binding High Court decisions, which held it to be arbitrary and violative of Article 14 of the Constitution of India. In view of those rulings, the demand founded on Rule 8(3A) could not be sustained.

Conclusion: The demand of duty and the penalty were unsustainable, and the issue was decided in favour of the assessee.

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