Appeal allowed against demand for default in timely duty payment under Rule 8(3A) of Central Excise Rules 2002

CESTAT Chennai allowed the appeal challenging demand for default in timely duty payment under Rule 8(3A) of Central Excise Rules, 2002. The tribunal held that Rule 8(3A) prohibiting CENVAT credit utilization for duty payment is ultra vires the main Act, following Gujarat HC's decision in Indsur Global Ltd. case. SC's recent disposal of the department's appeal through Lok Adalat settlement revived the HC precedent declaring the rule unconstitutional. Consequently, the demand for violation of Rule 8(3A) was unsustainable, and extended limitation period and penalties were also set aside.

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Issues:
1. Whether the demand for violation of Rule 8(3A) against the Appellant is sustainable in lawRs.
2. Whether the demand invoking the extended period and imposition of penalty is justifiedRs.

Analysis:

Issue 1:
The main issue in the appeal is whether the Appellant, who failed to make full payment of duty within the prescribed time limit under Rule 8 of Central Excise Rules, 2002, and defaulted in payment of excise duty, is bound by Rule 8(3A) of the same Rules. Rule 8(3A) mandates that if an assessee defaults in duty payment beyond 30 days, they must pay excise duty in cash without utilizing CENVAT credit until the outstanding amount is paid. The Appellant was alleged to have defaulted in duty payment for specific periods. The department contended that the Appellant was not eligible to use CENVAT credit for payment due to non-compliance with Rule 8(3A).

Judicial Precedents:
Several judicial authorities have held Rule 8(3A) as ultra vires to the main Act. The Gujarat High Court in the case of M/s. Indsur Global Ltd. struck down the provision of paying duty "without utilizing the CENVAT credit" as unconstitutional. This decision was followed by other High Courts in subsequent cases.

Decision:
Considering the settled legal position and precedents, the Tribunal held that the demand based on the violation of Rule 8(3A) cannot be sustained and must be set aside. Consequently, the invocation of the extended period and imposition of penalties were deemed unnecessary due to the lack of sustainable demand.

Issue 2:
Since the demand itself was found unsustainable, the question of justifying the extended period and penalty imposition did not arise, as per the Tribunal's decision.

Conclusion:
The Tribunal set aside the impugned Order-in-Appeal and allowed the appeal with any consequential relief as per the law. The decision was pronounced in open court on the specified date.

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