CESTAT sets aside demand for Rule 8(3A) violation, declares provision ultra vires following High Court precedents on CENVAT credit rights

CESTAT Chennai allowed the appeal challenging demand for contravention of Rule 8(3A) of Central Excise Rules, 2002 regarding failure to pay duty within prescribed time without utilizing CENVAT credit. The tribunal held that Rule 8(3A) is ultra vires to the main Act, following precedents from Gujarat HC and Bombay HC which declared the provision unconstitutional for infringing assessee's substantive right to utilize CENVAT credit. The demand was set aside as unsustainable.

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Issues:
1. Whether the demand as confirmed for violation of Rule 8(3A) against the Appellant-A1 is sustainable in lawRs.
2. Whether the demand can be raised invoking the extending period and imposition of penalty is justifiedRs.

Analysis:

Issue 1:
The main issue in the appeals was whether the Appellant-A1, who defaulted in payment of duty, could utilize CENVAT credit for payment of duty as per Rule 8(3A) of the Central Excise Rules, 2002. The department alleged non-payment of excise duty and belated filing of ER 1 returns, leading to a demand for Central Excise Duty. The Appellant argued that Rule 8(3A) was declared unconstitutional by various High Courts, rendering the demand unsustainable. The Hon'ble Tribunal and multiple High Courts held that Rule 8(3A) was ultra vires and unconstitutional, allowing the Assessee to utilize CENVAT credit even in case of default.

Issue 2:
Regarding the imposition of penalties and extending the period for demand, the Appellant contended that there was no intention to evade payment of duty, citing financial hardships and reliance on CBEC circulars. The Appellant also argued that the demand was revenue neutral and penalties under the Central Excise Act were not applicable in cases of wrong availment of CENVAT credit. The Tribunal, following precedent judgments, held that the demand based on Rule 8(3A) was unsustainable, leading to the setting aside of the impugned order and allowing the appeals with consequential relief.

The judgment emphasized the unconstitutionality of Rule 8(3A) and the Assessee's right to utilize CENVAT credit even in cases of default. The decision was based on various High Court rulings and the settlement of a related appeal at the Supreme Court level. Ultimately, the demand for Central Excise Duty and penalties under Rule 8(3A) were deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeals.

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