Nominal duty default disclosed in return and paid with interest cannot sustain demand or penalty absent mens rea.

Demand for non-payment of education cess and secondary higher education cess, along with the related penalty, was examined against Rule 8(3A) of the Central Excise Rules, 2002. The note records that the default was nominal, reflected in the ER-1 return, and later discharged with interest, which was treated as indicating no mens rea or intent to evade duty. It also notes that Rule 8(3A) had been held unconstitutional by several High Courts. On that reasoning, the demand and consequential penalty were considered unsustainable.

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Issues: Whether the demand raised for default in payment of education cess and secondary higher education cess, and the consequential penalty, were sustainable in view of Rule 8(3A) of the Central Excise Rules, 2002.

Analysis: The defaulted amount was nominal and had been reflected in the ER-1 return. The amount was later discharged with interest. On these facts, the Court found absence of mens rea or intention to evade duty. It also noted that Rule 8(3A) had been held unconstitutional by various High Courts.

Conclusion: The demand was held to be unsustainable and the consequential order was liable to be set aside.

Ratio Decidendi: Where the default is nominal, disclosed in return, and subsequently discharged with interest, and the statutory restriction itself has been held unconstitutional, the demand and penalty cannot be sustained absent mens rea.

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