2025 (3) TMI 739 - AT - Central Excise

Central Excise demand and penalties under Rule 8(3A) set aside; Tribunal cites binding precedents declaring rule ultra vires. (3A)

M/s TSAC Polymers Versus Commissioner of Central Excise & CGST, Noida

The Tribunal determined that the demand for Central Excise duty and associated penalties imposed on the Appellant under Rule 8(3A) of the Central Excise ... Failure to discharge monthly payment of duty under Rule 8(3A) of the Central Excise Rules, 2002 - HELD THAT:- The issue involved in this matter has been decided by the Hon’ble Gujarat High Court in the case of Indsur Global Limited Vs. Union of India,2014 (12) TMI 585 - GUJARAT HIGH COURT] and Sandley Industries Ltd. Vs. Union of India, [2015 (10) TMI 2455 - PUNJAB & HARYANA HIGH COURT] wherein provision of Rule 8(3A) of Central Excise Rules, 2002 was held ultra virus. Therefore, no demand can be raised against the Appellant and the decision of the Hon’ble Gujarat High Court in the case of Indsur Global Limited was taken up by the Revenue before the Hon’ble Supreme Court in UNION OF INDIA & ORS. VERSUS INDSUR GLOBAL LTD. [2024 (7) TMI 1559 - SC ORDER (LB)], Larger Bench of the Supreme Court disposed of the SLP filed by the Revenue as not pressed. Under these circumstances, the decision of the Hon’ble Gujarat High Court in the case of Indsur Global Ltd. is holding the field. Accordingly, relying on the decision of Hon’ble Gujarat High Court in the case of the Indsur Global Ltd., the demand against the Appellant is not sustainable. Consequently, no penalty is imposable. Conclusion - The demand and penalties based on Rule 8(3A) were not enforceable, as the rule was declared ultra vires. The appeal filed by the Appellant is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the demand for Central Excise duty and associated penalties imposed on the Appellant under Rule 8(3A) of the Central Excise Rules, 2002, were valid and enforceable, given the precedents set by higher courts declaring the rule ultra vires.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe primary legal framework involved the Central Excise Rules, 2002, specifically Rule 8(3A), which mandates the payment of duty without utilizing Cenvat credit during a period of default. The Appellant's case was influenced by the decisions in Indsur Global Limited Vs. Union of India and Sandley Industries Ltd. Vs. Union of India, where Rule 8(3A) was declared ultra vires by the Gujarat High Court and Punjab & Haryana High Court, respectively.Court's Interpretation and ReasoningThe Tribunal noted that the issue of non-payment of duty under Rule 8(3A) had been previously adjudicated by the Gujarat High Court, which found the rule to be ultra vires. This decision was not challenged further by the Revenue in the Supreme Court, as the Special Leave Petition was not pressed. Thus, the Tribunal concluded that the precedent set by the Gujarat High Court was still applicable and binding.Key Evidence and FindingsThe Tribunal reviewed the facts that the Appellant had failed to discharge the monthly duty payment as required, leading to the confirmation of the demand and penalty by the lower authorities. However, the Tribunal found that the legal basis for these demands, Rule 8(3A), was invalidated by higher court rulings.Application of Law to FactsApplying the legal precedents to the facts, the Tribunal determined that since Rule 8(3A) was declared ultra vires, the demands and penalties imposed on the Appellant under this rule could not be sustained. The Tribunal relied on the principle that an ultra vires rule cannot form the basis of a valid demand or penalty.Treatment of Competing ArgumentsThe Tribunal addressed the arguments from both sides, emphasizing the binding nature of the Gujarat High Court's decision. The Tribunal effectively dismissed any competing arguments from the Revenue that sought to uphold the demand, as the legal foundation for such a demand was no longer valid.ConclusionsThe Tribunal concluded that the demand for Central Excise duty and the associated penalties were unsustainable due to the invalidation of Rule 8(3A). Consequently, the appeal was allowed, and the Appellant was entitled to consequential relief.SIGNIFICANT HOLDINGSThe Tribunal's significant holding was that the demand and penalties based on Rule 8(3A) were not enforceable, as the rule was declared ultra vires. The Tribunal stated, 'Under these circumstances, I hold that the decision of the Hon'ble Gujarat High Court in the case of Indsur Global Ltd. (Supra) is holding the field. Accordingly, relying on the decision of Hon'ble Gujarat High Court in the case of the Indsur Global Ltd. (Supra), I hold that the demand against the Appellant is not sustainable.'The core principle established by this judgment is the non-enforceability of demands and penalties based on a rule declared ultra vires by competent judicial authorities. The final determination was the allowance of the appeal, setting aside the demand and penalties imposed on the Appellant.