CESTAT quashes Excise Demand, Rules CENVAT Credit Restrictions Unconstitutional [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai, recently quashed a duty demand against a manufacturer, ruling that the restriction on utilizing CENVAT credit for duty payment during default periods, as stipulated under Rule 8(3A) of the Central Excise Rules, 2002, is unconstitutional. This decision was delivered in an appeal stemming from an order by the Commissioner of Central Excise, Puducherry.

The appellant, Astalife, a manufacturer of P&P Medicaments, had availed CENVAT credit on inputs, capital goods, and input services. The Department initiated action after finding that Astalife had defaulted on duty payments from April 2011 to January 2013 and continued such defaults beyond thirty days.

The Department alleged that the company failed to pay duty on a consignment basis without utilizing CENVAT credit, as required by Rule 8(3A), and subsequently issued a show cause notice demanding duty of Rs. 3,69,42,602. Astalife had accepted the delay in payment and stated it was due to a financial crisis, having already cleared Rs. 1,82,66,037 along with interest of Rs. 15,18,153.

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The Tribunal noted that the sole issue for consideration was the sustainability of demands made for violation of Rule 8(3A). The appellant's advocate, K.V. Subramanian, argued that the condition in Rule 8(3A) requiring payment of duty "without utilizing the cenvat credit" had been declared unconstitutional by the Gujarat High Court in the case of Indsur Global Ltd v Union of India (2014). He also highlighted that the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. v. Union of India (2015) had concurred with this view. These decisions, he submitted, were followed by the Tribunal's own bench in previous orders.

The bench, comprising M. Ajit Kumar, Member (Technical), and Ajayan T.V., Member (Judicial), found that the issue is settled in favor of the assessee due to various High Courts holding Rule 8(3A) as ultra vires of Article 14 of the Constitution.

The Tribunal referenced the Bombay High Court's ruling in Commissioner of Central Excise & Customs, Nashik-II Vs. Nashik Forge Pvt. Ltd. (2019), which stated that Rule 8(3A) infringes upon the substantive right to utilize CENVAT credit. The Tribunal ultimately set aside the impugned order, allowing the appeal with consequential benefits.

To Read the full text of the Order CLICK HERE

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