Invalidated excise rule cannot sustain demand, interest or penalty where proceedings rest entirely on unconstitutional Rule 8(3A).

Proceedings founded solely on Rule 8(3A) of the Central Excise Rules, 2002 could not be sustained after that provision had been struck down as unconstitutional by High Courts. Because the show cause notice and consequential orders derived entirely from the invalidated rule, the demand, interest and penalty lacked a lawful foundation and were set aside.

---

---

Issues: Whether the demand, interest and penalty based solely on Rule 8(3A) of the Central Excise Rules, 2002 could survive after that provision had been struck down as unconstitutional.

Analysis: The proceedings were founded entirely on Rule 8(3A), which required payment of duty through account current and prohibited utilisation of CENVAT credit in the event of default. The rule had already been declared ultra vires by various High Courts. Where the very foundation of the show cause notice and the consequential orders is a provision that has been held unconstitutional, the proceedings derived from that provision cannot be sustained. In such a situation, no duty liability or penalty can be upheld on the basis of the invalidated rule.

Conclusion: The demand, interest and penalty were unsustainable and were set aside in favour of the appellant.

Ratio Decidendi: Proceedings founded solely on a provision that has been struck down as unconstitutional cannot survive, and no duty or penalty can be sustained under that invalidated provision.

---