TMI Blog2014 (12) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... I MR. VIPUL M. PANCHOLI, JJ. MR PARESH M DAVE, ADVOCATE FOR THE PETITIONER MR DEVANG VYAS, ADVOCATE , MR KALPESH N SHASTRI, ADVOCATE FOR THE RESPONDENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioners have challenged the order dated 27.07.2010 passed by the adjudicating authority as also an appellate order dated 21.12.2010 passed by the Commissioner (Appeals) confirming the order in original. 2. Brief facts are as under: 2.1. The petitioners are engaged in manufacture of excisable goods. As per Rule 8(1) of the Central Excise Rules, 2002, the petitioners are 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. Subrule (3A) of Rule 8 provides that in case 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 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by subrule (3A) of rule 8 is unreasonable and therefore violative of Article 14 of the Constitution and amounts to serious restriction on the petitioner s right to carry on trade or business of his choice guaranteed under Article 19(1)(g) of the Constitution. This contention requires a closer scrutiny. As noted earlier, the restrictions of subrule (3A) come in two folds. Firstly, a defaulter assessee has to clear the consignments on spot payment of excise duty and secondly, that such excise duty has to be paid in cash without availing cenvat credit. This rule does not make any distinction between the willful defaulter and the others. Though term willful defaulter has not been defined in the statute, the concept is not an unknown one. Section 11AC of the Central Excise Act provides for penalty in case of nonlevy, short levy or non-payment or short payment or erroneous refund of the duty where the same is occasioned by reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or the rules made thereunder with an intent to evade payment of duty. Likewise, section 11A which pertains to recovery of duties no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omised. All such cases of defaults willful or otherwise are clubbed together for the same treatment and a stringent condition of payment of excise duty without availing cenvat credit is imposed. It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for payment of duty in addition to the duty which he has already paid. Cenvat credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his cenvat credit account available to him for adjustment for payment of excise duty liability upon clearance of the finished product. If such facility is withdrawn, it could be appreciated, his ability to continue the business under such adverse financial climate would further diminish. This would be a cyclical vicious pattern where in every month he would fall behind by the due date unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts worked out or until those goods existed. We may also recall that in the case of Dai Ichi Karkaria Ltd (supra) it was reiterated that a manufacture obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable produce immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. 32. As held by the Supreme Court in the case of Chantamanrao (supra), the phrase reasonable restriction connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Article 19(1)(g) and the social control permitted by clause (6) of Article 19, it must be held to be wanting in that quality. 33. In the case of Om Kumar (supra), the Supreme Court recognized the applicability of the principle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying the duty borders to creating a penalty. 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. 36. In the result, the condition contained in subrule (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 subrule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid. 4. When the entire showcause notice, order in original and appellate order are based on Subrule (3A) of Rule 8, the portion of which came to be struck down, such orders cannot su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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