Unconstitutional Rule 8(3A) cannot support duty demand or penalty based solely on Cenvat credit use during default period.

Where duty demand and penalty were founded solely on Rule 8(3A) of the Central Excise Rules, 2002, they could not survive after that rule was held ultra vires by High Courts. The rule had barred use of Cenvat credit and required cash payment during the default period; once its constitutional validity failed, the basis of the show-cause notice and consequential orders ceased to exist. In the absence of a valid disabling provision, no demand or penalty could be sustained for the disputed period, and the assessee obtained relief.

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Issues: Whether, after Rule 8(3A) of the Central Excise Rules, 2002 was held unconstitutional, duty demand and penalty for payment of duty through Cenvat credit during the default period could survive.

Analysis: The demand and penalty were founded entirely on Rule 8(3A), which barred utilisation of Cenvat credit and required payment through cash during the default period. As the rule had been struck down by High Courts as ultra vires, the basis of the show-cause notice and the consequential orders ceased to exist. In the absence of a valid charging or disabling provision, no duty demand or penalty could be sustained for the disputed period.

Conclusion: The demand and penalty were unsustainable and the appeal was allowed.

Final Conclusion: The impugned orders were set aside, and the assessee obtained relief from the duty demand and penalty founded on Rule 8(3A).

Ratio Decidendi: Once the statutory provision forming the sole foundation of the demand is declared unconstitutional, proceedings based exclusively on that provision cannot survive.

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