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of <h1>Using CENVAT credit to pay excise duty despite default: Rule 8(3A) 'no credit' bar struck down, demand set aside.</h1> The dominant issue was whether Rule 8(3A) of the Central Excise Rules, 2002 could mandate an assessee in default to discharge duty 'without utilizing ... Requiring payment of Central Excise duty without utilizing CENVAT Credit - sub-rule (3A) of rule 8 of the 2002 Rules has been struck down by the Gujarat High Court in Indsur Global Ltd. vs Union of India [2014 (12) TMI 585 - GUJARAT HIGH COURT] - HELD THAT:- The issue involved in this appeal is covered by the decision of the Gujarat High Court in Indsur Global where it was held that insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty. In the result, the condition contained in sub-rule (3A) of Rule 8 for payment of duty without utilizing the Cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion “without utilizing the Cenvat credit” of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002, shall be rendered invalid As sub-rule (3A) of rule 8 of the 2002 Rules has been struck down being unconstitutional, the demand raised in this appeal under sub-rule (3A) of rule 8 of the 2002 Rules cannot be sustained and is set aside. The impugned order dated July 10, 2018 is, accordingly, set aside - appeal is allowed. Issues: Whether sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 is constitutionally valid and whether a demand raised under sub-rule (3A) can be sustained.Analysis: The issue turns on the effect and validity of sub-rule (3A) of Rule 8, which imposed a restriction requiring an assessee in default to pay duty without utilizing CENVAT credit. The Court noted that this provision had been examined and declared unconstitutional by the Gujarat High Court in Indsur Global, a view subsequently followed by several High Courts. The departmental representative accepted that the issue is covered by that precedent. The provision was contrasted with the amended statutory scheme that provides for a monetary penalty mechanism in place of the prior restriction on CENVAT credit; the earlier restriction was held to be disproportionate, arbitrary and violative of constitutional protections, including equality and trade rights.Conclusion: Sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 is unconstitutional to the extent it prohibits utilization of CENVAT credit; the demand raised under sub-rule (3A) cannot be sustained and is set aside. The appeal is allowed in favour of the assessee.Ratio Decidendi: The portion of sub-rule (3A) of Rule 8 of the Central Excise Rules, 2002 that prevents an assessee from utilizing CENVAT credit until outstanding duty and interest are paid is arbitrary and disproportionate and is thus constitutionally invalid; demands based solely on that prohibition cannot be sustained.
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