2025 (6) TMI 1723 - AT - Central Excise

Denial of utilization of CENVAT Credit for payment of duty during the defaulted period in terms of Rule 8(3A) of Central Excise Rules 2002 - HELD THAT - The issue in the case of Indsur Global Ltd. is no more pending before the Hon ble Supreme Court. Thus the bar imposed by the Kolkata is no more applicable on the Tribunal and the matter can be decided based on the available documents. Considering the fact that the provisions of Rule8(3A) of Central Excise Rules 2002 have been declared ultra vires by the Hon ble Gujarat High Court in the case of Indsur Global Ltd. 2014 (12) TMI 585 - GUJARAT HIGH COURT and also by the Hon ble Punjab and Haryana High Court in the case of Sandley Industries 2015 (10) TMI 2455 - PUNJAB HARYANA HIGH COURT it is held that CENVAT Credit cannot be denied to the appellant for utilization in payment of duty during the defaulted period. Conclusion - CENVAT Credit cannot be denied to the appellant for utilization in payment of duty during the defaulted period. The demand of duty along with interest confirmed and penalty imposed in the impugned order is not legally sustainable - Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal include:

1. Whether the denial of utilization of CENVAT Credit for payment of duty during the defaulted period under Rule 8(3A) of the Central Excise Rules, 2002 is legally sustainable.

2. Whether the provisions of Rule 8(3A) of the Central Excise Rules, 2002 are constitutionally valid or have been declared ultra vires by various High Courts.

3. Whether the demand of duty, interest, and penalty imposed on the appellant for alleged misutilization of CENVAT Credit during the defaulted period can be upheld in light of judicial precedents.

4. The impact of the Hon'ble Supreme Court's disposal of related Special Leave Petitions and appeals on the continuation of the demand and penalty proceedings under Rule 8(3A).

Issue-wise Detailed Analysis

Issue 1: Validity and Applicability of Rule 8(3A) of the Central Excise Rules, 2002

The legal framework involves Rule 8(3A) of the Central Excise Rules, 2002, which restricts the utilization of CENVAT Credit for payment of duty during the period of default in payment of duty. The Revenue sought to deny the appellant the benefit of CENVAT Credit for the period from 05.09.2008 to 11.09.2008, alleging non-payment of duty and interest within the prescribed time.

Precedents relevant to this issue include the decisions of the Hon'ble Gujarat High Court in Indsur Global Ltd. v. Union of India and the Hon'ble Punjab and Haryana High Court in Sandley Industries v. Union of India, both of which have declared Rule 8(3A) ultra vires. These rulings hold that denial of CENVAT Credit under this provision is not legally tenable.

The appellant relied on these precedents to argue that the demand and penalty based on Rule 8(3A) should be set aside.

The Tribunal noted that the Hon'ble Calcutta High Court had earlier stayed proceedings pending the Supreme Court's decision in related appeals. However, the Supreme Court disposed of the Special Leave Petitions and appeals as not pressed, effectively removing any bar on adjudication of the matter.

The Tribunal examined the Supreme Court order, which referred the dispute to Lok Adalat and disposed of the appeals, confirming that the question of Rule 8(3A)'s validity is no longer pending before the apex court.

Consequently, the Tribunal held that the bar imposed by the Calcutta High Court was no longer applicable, and it was free to decide the matter on merits.

Issue 2: Denial of CENVAT Credit and Imposition of Demand and Penalty

Given the judicial pronouncements declaring Rule 8(3A) ultra vires, the Tribunal analyzed whether the demand of duty along with interest and penalty imposed on the appellant could be sustained.

The Tribunal referred to its own earlier decision in Hindustan Windows MFG. Co. v. Commissioner of Central Excise, Kolkata, where it was held that since Rule 8(3A) has been declared ultra vires, CENVAT Credit cannot be denied for utilization during the defaulted period. Consequently, demands and penalties based on this provision are unsustainable.

The Tribunal applied the same reasoning to the present facts, noting that the appellant's duty liability was calculated under Rule 8(3A) for the period of default, and the penalty was imposed on the basis of alleged misutilization of CENVAT Credit during this period.

Since the foundational provision was held invalid, the Tribunal concluded that the demand and penalty lacked legal basis.

The Tribunal also considered the absence of any contrary binding precedent or legislative amendment that would revive the provision's validity or the demand's legality.

Issue 3: Effect of Supreme Court's Disposal of Related Appeals

The Tribunal examined the procedural posture, noting that the Calcutta High Court had stayed proceedings pending the Supreme Court's judgment in Special Leave Petition No. 16523/2015 and related appeals.

However, the Supreme Court's order dated 29.07.2024 disposed of these matters as not pressed, referring the dispute to Lok Adalat and effectively closing the judicial review on the issue.

The Tribunal interpreted this to mean that the issue was no longer pending before the Supreme Court, and the stay or bar on adjudication was lifted.

This allowed the Tribunal to decide the appeal based on existing precedents and the legal position established by various High Courts.

Conclusions on Issues

The Tribunal concluded that:

- Rule 8(3A) of the Central Excise Rules, 2002 has been declared ultra vires by multiple High Courts and is no longer tenable.

- Denial of CENVAT Credit utilization during the defaulted period under this rule is unlawful.

- The demand of duty, interest, and penalty imposed on the appellant based on Rule 8(3A) cannot be sustained.

- The Supreme Court's disposal of related appeals removes any procedural impediment to deciding the matter.

Significant Holdings

The Tribunal's key legal reasoning is encapsulated in the following verbatim excerpt from its earlier decision cited herein:

"Considering the fact that the provision of Rule 8(3A) of Central Excise Rule, 2002 has been declared ultra vires by the Hon'ble Gujrat High Court in the case of Indsur Global Ltd. (Supra) and Hon'ble Punjab & Haryana High Court in the case of Sandley Industries v. UOI 2015 (326) E.L.T. 256 (P & H) (Supra). Therefore, we hold that Cenvat Credit cannot be denied to the appellant for utilization of payment of duty during the defaulted period. In that circumstances the demand against the appellant for recovery of Cenvat Credit during the defaulted period is not sustainable and consequently, no penalty is imposable on the appellant."

This principle was reaffirmed in the present appeal, leading to the final determination that the impugned demand and penalty are quashed.

The Tribunal's final order set aside the impugned order and allowed the appeal with consequential relief as per law.