Tribunal rules demand for interest on Cenvat Credit use during default unconstitutional

The Tribunal held that the demand for interest on the utilization of Cenvat Credit in contravention of Rule 8(3A) of the Central Excise Rules, 2002 was unsustainable. Relying on judgments from the High Courts of Gujarat and Madras, it was determined that the provision restricting Cenvat Credit use during default was unconstitutional. As a result, the demand for additional interest was set aside, and the appeal was allowed in favor of the appellant.

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Issues:
Challenge of demand of interest on utilization of Cenvat Credit in contravention of Rule 8(3A) of the Central Excise Rules, 2002.

Analysis:
1. The appellant contested the demand of interest due to the utilization of Cenvat Credit against the provision of Rule 8(3A) of the Central Excise Rules, 2002. The issue arose from the delayed payment of excise duty for various months, leading to the restriction on utilizing Cenvat Credit until the outstanding amount, including interest, was paid.

2. The appellant eventually paid the defaulted duty along with interest after a significant delay. Subsequently, the department directed the appellant to pay a specific amount, which was remitted through PLA in two installments. However, a demand for additional interest was later served without a show cause notice, citing statutory liability without the need for a separate notice.

3. The crux of the matter revolved around the demand of interest on wrongly availed credit during the defaulted period. The appellant argued that the provision restricting Cenvat Credit use during default, as per sub-rule (3A) of Rule 8, was declared unconstitutional by the High Court of Gujarat in a specific case, leading to a change in the mechanism for recovery.

4. Citing judgments from the High Courts of Gujarat and Madras, the Tribunal concluded that the condition in sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, regarding payment of duty without utilizing Cenvat Credit, was unconstitutional. Consequently, the demand for interest was deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeal in favor of the appellant.

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