CX - Because petitioner paid interest of barely Rs. 12,000 through CENVAT instead of paying it in cash, all subsequent clearances were stigmatized by invoking rule 8(3A) - since this sub-rule has been struck down, all orders based on same cannot survive: HC
By TIOL News Service
AHMEDABAD, DEC 15, 2014: TAKE a look at the contents of the much maligned rule 8 of CER, 2002 as it stood in the year 2010.
As per Rule 8(1) of the CER, 2002, an assessee is required to pay excise duty on clearance of such finished products on 5th or 6th day of the following month dependent on the mode of payment of the duty. As per Sub-rule (3) of Rule 8, if the assessee fails to pay the amount of duty by due date, it would invite interest liability.
Sub-rule (3A) of Rule 8 provided that an assessee who defaults in payment of such duty beyond 30 days from the due date would have to clear the goods on actual payment of duty and that too without availing CENVAT Credit. In other words, in case of such defaulters the facility of monthly payment of excise duty is withdrawn and the clearance to be made on actual payment of duty would have to be without availing CENVAT Credit.
On one occasion, it appears that the petitioners paid the duty beyond the due date but within 30 days and were, therefore, required to pay interest of Rs.11,400/- on delayed payment of excise duty.
The petitioners paid such interest, however, by utilizing the CENVAT Credit.
The department held a belief that until such interest for delayed payment of dues was paid in cash all subsequent clearances by utilizing CENVAT Credit would be irregular.
Bringing into picture rule 8(3A) of CER, 2002 as it then existed, for the subsequent period, though the petitioners did pay the excise duty of Rs.19,16,737/- but did so by utilizing CENVAT Credit, according to the department, this was also irregular and tainted in view of Sub-rule (3A) of Rule 8 of the CER, 2002.
On such premise, the adjudicating authority issued a SCN under which the petitioner was called to show cause as to why the duty of Rs.19,16,737/- paid through CENVAT account be not demanded and recovered through personal ledger account as per Sub-rule (3A) of Rule 8 of the CER, 2002 with interest and penalties.
The adjudicating authority confirming the duty demand with interest& penalties and the Commissioner (A) followed suit.
The petitioners have challenged these orders before the Gujarat High Court.
The High Court observed that the validity of Sub-rule (3A) of Rule 8 of Central Excise Rules, 2002 came up for consideration before the Court in case of Indsur Global Ltd. v. Union of India , wherein, in a judgment dated 26-27/11/2014 in Special Civil Application No.3344 of 2014 [2014-TIOL-2115-HC-AHM-CX],portion of the said rule which provides that the assessee would clear the goods on payment of excise duty "without utilizing CENVAT credit" to the extent the group of words indicated in the inverted comma were declared ultra vires and unconstitutional.
After extracting paragraphs 29 to 36 of the said decision, the High Court, observed -
“4. When the entire show-cause notice, order in original and appellate order are based on Sub-rule (3A) of Rule 8, the portion of which came to be struck down, such orders cannot survive. We have narrated facts only to demonstrate that the facts of the present case squarely fall within the portion of the Rule which was declared as ultra vires by the Court. It was only because the petitioner paid interest of barely about Rs.12,000/- through CENVAT Credit instead of paying it in cash, their all subsequent clearances were stigmatized. This was solely relying on the portion of Sub-rule (3A) of Rule 8, which required that the future clearances of a defaulter must be without utilization of the CENVAT Credit.”
The orders passed by the lower authority were set aside and the petition was allowed.
(See 2014-TIOL-2235-HC-AHM-CX)
