Unconstitutional CENVAT credit restriction invalidated; duty, confiscation and penalty based on Rule 8(3A) could not survive.

Rule 8(3A) of the Cenvat Credit Rules, 2004, requiring defaulting assessees to pay duty without using CENVAT credit, was treated as unconstitutional following Gujarat HC in Indsur Global Ltd. The restriction was found arbitrary and disproportionate because it applied uniformly irrespective of the nature, extent, or reason for default, and it denied use of already earned credit. The provision was held to violate Articles 14 and 19(1)(g) of the Constitution. As a result, demand, confiscation, and penalty proposed solely on that basis could not be sustained, and further proceedings dropped on that ground were not liable to revival.

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Issues: Whether the demand, confiscation and penalty proposed for payment of duty through CENVAT credit during the default period under Rule 8(3A) of the Cenvat Credit Rules, 2004 could survive after the said rule had been declared unconstitutional.

Analysis: The Tribunal noted that the controlling issue was covered by the decision of the Gujarat High Court in Indsur Global Ltd., where the condition in Rule 8(3A) requiring payment of duty without utilizing CENVAT credit was held to be unconstitutional. The reasoning accepted that the rule treated defaulting assessees as a separate class, but found the restriction to be arbitrary and excessive because it applied uniformly regardless of the nature, extent, or reason for the default. The rule was held to impose a harsh and disproportionate burden by denying the assessee the facility of credit already earned, and was found to be violative of Articles 14 and 19(1)(g) of the Constitution of India.

Conclusion: The proposed consequences under Rule 8(3A) could not be sustained, and the Revenue's challenge to the order dropping further proceedings failed.

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