Unconstitutional subordinate rule cannot sustain excise demand or penalty once the offending provision is struck down.

A demand of central excise duty and penalty based solely on rule 8(3A) of the Central Excise Rules, 2002 could not survive once the relevant part of the rule had been declared unconstitutional. The tribunal applied the settled principle that a subordinate provision struck down as invalid cannot be used to sustain recovery or penal action, and followed the view taken by other High Courts. The demand and penalty were therefore set aside in favour of the assessee, and the impugned adjudication was annulled.

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Issues: Whether the demand of central excise duty and penalty could be sustained under rule 8(3A) of the Central Excise Rules, 2002 after that provision had been declared unconstitutional.

Analysis: The demand arose solely from the consequence stipulated in rule 8(3A) for default in payment beyond the prescribed period. The provision, to the extent it required payment of duty without utilising Cenvat credit, had already been declared unconstitutional and invalid. The decision relied on the settled position that the provision could not be applied to sustain a demand once the offending part of the rule had been struck down and the same view had been followed by other High Courts.

Conclusion: The demand and penalty based on rule 8(3A) could not be sustained and were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned adjudication confirming the demand was annulled.

Ratio Decidendi: A demand founded on a provision of subordinate legislation that has been declared unconstitutional cannot survive.

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