Rule 8(3A) Central Excise Rules 2002 declared unconstitutional, demand for duty payment default set aside

CESTAT Chennai allowed the appeal and set aside the demand confirmation. The case involved default in duty payment beyond thirty days and violation of Rule 8(3A) of Central Excise Rules 2002. The appellant argued that Rule 8(3A) was struck down as unconstitutional by HCs. CESTAT held that Gujarat HC and Madras HC had declared Rule 8(3A) unconstitutional as it arbitrarily prohibited use of Cenvat credit for duty payment, infringing substantive rights. Since the provision was declared unconstitutional by HCs, it became non-existent and the demand could not sustain.

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Issues:
Violation of Rule 8(3A) of Central Excise Rules 2002 leading to demand of duty, interest, and penalties for non-payment of excise duty on time.

Analysis:
The appellant, engaged in manufacturing parts of motor vehicles, availed Cenvat Credit for excise duty payments. However, scrutiny revealed delays in duty payments for June 2013 and subsequent months, with partial payments made using Cenvat account. The department alleged contravention of Rule 8(3A) of Central Excise Rules 2002, treating goods as cleared without duty payment, triggering penalties under Section 11AC and Rule 25.

The appellant contested the demand, citing the unconstitutionality of Rule 8(3A) based on judgments from various High Courts. The High Courts of Gujarat and Madras, along with the Bombay High Court, declared Rule 8(3A) unconstitutional, emphasizing the infringement of substantive rights regarding Cenvat credit. Notably, the Hon'ble Supreme Court dismissed an appeal against the Gujarat High Court's decision, reinforcing the unconstitutionality of the rule.

Moreover, the Tribunal referred to a case where a demand/penalty under Rule 8(3A) was set aside, supporting the appellant's argument. Relying on the judgments of multiple High Courts, the Tribunal concluded that the demand was unsustainable, setting aside the penalties imposed. The Tribunal emphasized that when multiple High Courts declare a provision unconstitutional, it becomes non-existent, leading to the allowance of the appeal and the setting aside of the impugned order.

In light of the above analysis and legal precedents, the Tribunal allowed the appeal, setting aside the demand, interest, and penalties imposed. The decision was based on the unconstitutionality of Rule 8(3A) as established by various High Court judgments, leading to the conclusion that the demand could not be sustained.

This detailed analysis highlights the legal intricacies surrounding the violation of Rule 8(3A) of the Central Excise Rules 2002 and the subsequent legal arguments and judgments that influenced the final decision of setting aside the demand and penalties.

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