2023 (4) TMI 766 - AT - Central Excise

Tribunal allows appeal in Central Excise Rule contravention case due to High Court ruling.

The Appellate Tribunal allowed the appeal in a case involving alleged contravention of Central Excise Rules. The Tribunal held that since the provision in ... Constitutional Validity of Rule 8(3A) read with Rule 8(1) and Rule 8(3) of Central Excise Rules, 2002 - default in payment of Central Excise Duty - It is the submission in the grounds of appeal that the Commissioner should have appreciated that the provisions of Rule 8(3A) would apply only till the date the assessee pays the outstanding amount including the interest thereon - HELD THAT:- The issue is no more res integra and is squarely covered by the judgement of the Hon’ble Calcutta High Court in the case of M/S. GOYAL MG GASES PVT. LTD VERSUS UNION OF INDIA & OTHERS [2017 (8) TMI 1515 - CALCUTTA HIGH COURT], wherein it is categorically held that when Rule 8 (3A) is declared ultra vires by the different High Courts then the Revenue cannot take a different stand contrary to the said judgements. The Hon’ble Court further declared Rule 8(3A) as invalid which is not stayed by the Hon’ble Supreme Court. The Hon’ble Gujarat High Court in the case of INDSUR GLOBAL LTD. VERSUS UNION OF INDIA & 2 [2014 (12) TMI 585 - GUJARAT HIGH COURT] has declared the words “without utilizing Cenvat Credit” under Rule 8(3A) as ultra vires which means that the assessee can discharge duty by utilizing Cenvat Credit which is what exactly has been done in the instant case by the Appellant. The said judgment has been followed by the Hon’ble Calcutta High Court in the case of Goyal MG Gases Pvt. Ltd. v. UOI which is not stayed by the Hon’ble Supreme Court. The Hon’ble Calcutta High Court in the said case, has declared the provisions of Rule 8(3A) ibid as invalid and further has held that the Revenue cannot take a different stand and parity has to be extended to the assessee - the demand in the instant case has been raised for contravention of Rule 8(3A) ibid restricting utilization of Cenvat credit during the period of default which provision has been declared ultra vires/invalid by Court, hence the demand cannot be sustained. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand for contravention of Rule 8(3A) of the Central Excise Rules, 2002 (restricting utilization of CENVAT credit during period of default in duty payment) is sustainable where the assessee subsequently discharged duty by utilization of CENVAT credit together with interest. 2. Whether Rule 8(3A) (or the phrase 'without utilizing Cenvat Credit' therein) is valid law where earlier High Court judgments have declared the provision/phrase ultra vires and such declarations have not been stayed by the Supreme Court, and what is the consequence for revenue action taken contrary to those declarations. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainabilty of demand under Rule 8(3A) when duty later paid by CENVAT credit with interest Legal framework: The demand arises under Rule 8(3A) read with Rules 8(1), 8(3) and other provisions of the Central Excise Rules, 2002 and Rule 3(4) of the CENVAT Credit Rules, 2004. Rule 8(3A) (as applied) sought to restrict the utilization of CENVAT credit for payment of duty during periods of default in payment of central excise duty. Precedent treatment: The Tribunal noted binding precedent from the Calcutta High Court (followed in this judgment) and earlier Gujarat High Court decisions (followed by Calcutta High Court) that struck down the restrictive language of Rule 8(3A) (or the words 'without utilizing Cenvat Credit') as ultra vires. Interpretation and reasoning: The Tribunal examined the factual position that the assessee ultimately discharged the outstanding duty by utilizing CENVAT credit together with interest. The Tribunal accepted the contention that Rule 8(3A) (as applied to prohibit utilization of CENVAT credit during default) would not apply once the assessee paid the outstanding duty and interest, but more fundamentally that the provision restricting such utilization has been judicially declared invalid in binding High Court authority which is not stayed. Ratio vs. Obiter: Ratio - where a statutory provision restricting use of CENVAT credit during default has been declared ultra vires by a High Court and that declaration is not stayed by the Supreme Court, revenue cannot sustain demands based on that provision; the later payment by utilization of CENVAT credit with interest does not create a separate basis to uphold the demand if the provision itself is invalid. Obiter - nuances about timing of payments and precise months of alleged non-submission of ER-1s are ancillary to the controlling legal point. Conclusion: Demand founded on Rule 8(3A) for restricting utilization of CENVAT credit cannot be sustained where the assessee discharged duty through CENVAT credit with interest and the underlying restrictive provision has been judicially declared invalid and is not stayed. Issue 2 - Effect of High Court declarations that Rule 8(3A) (or wording 'without utilizing Cenvat Credit') is ultra vires on revenue actions Legal framework: Principles of precedent and binding effect of High Court decisions within jurisdiction, and the legal consequence where a High Court has declared a provision ultra vires and that declaration is not stayed by the Supreme Court. Precedent treatment: The Tribunal relied on the Calcutta High Court judgment which declared Rule 8(3A) invalid and on the Gujarat High Court judgment that specifically struck down the words 'without utilizing Cenvat Credit.' The Tribunal treated those High Court rulings as binding/authoritative for the instant matter and followed them in setting aside revenue demand. Interpretation and reasoning: The Tribunal reasoned that once Rule 8(3A) (or its restrictive phrase) is declared ultra vires by High Courts and such declarations are not stayed by the Supreme Court, Revenue cannot take a contrary stand in subsequent assessments or demands. Parity must be extended to similarly placed assessees; demands predicated solely on the invalid provision must fall. The Tribunal viewed the prior judgments as controlling on the legal validity of the provision and as precluding revenue from sustaining demands based on that provision. Ratio vs. Obiter: Ratio - a High Court declaration that a provision is ultra vires, if not stayed by the Supreme Court, renders the provision unenforceable in subsequent cases within the jurisdiction, and revenue demands based on that provision cannot be sustained; parity must be extended to other assessees. Obiter - references to particular earlier decisions or procedural points not essential to the holding (e.g., mention of specific months of ER-1 non-submission) are incidental. Conclusion: The Tribunal concluded that Rule 8(3A), or the words therein restricting utilization of CENVAT credit, having been declared ultra vires by competent High Court(s) and not stayed, cannot be the basis for valid demands; thus revenue action under that provision must be set aside and the appeal allowed with consequential reliefs. Cross-references and interrelation 1. Issue 1 relies on the resolution of Issue 2: the unsustainability of the demand both because the assessee paid duty by using CENVAT credit with interest and because the restrictive provision has been judicially invalidated. 2. The Tribunal's conclusion synthesizes statutory construction, payment facts, and binding judicial precedent to reach the outcome that demands under the challenged provision are unsupportable.