Rule 8(3A) of Central Excise Rules is Ultra Vires: CESTAT quashes Excise Duty Demand, Invalidates Restriction on Cenvat credit Utilization during Default

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed the excise duty demand and invalidated the restriction on Cenvat credit utilization during default as Rule 8(3A) of the Central Excise Rules is ultra vires.

The appellant, M/s. Prasanthi Wax Oils Private Limited, is engaged in the manufacture of Transformer Oil (Servo electra) on behalf of M/s. Indian Oil Corporation Ltd. The main raw materials like Base Oil (Crude Oil), Additives, Barrels (Packing Material) etc. are supplied by M/s. IOC on which duty at the appropriate rate have already been paid.

The department initiated the proceedings directing the Appellant to show cause as to why the facility of monthly payment of duty by utilizing the lawfully earned Cenvat Credit should be disallowed for the entire period from 06/01/2009 to 14/12/2009 when the Appellant made good of the deficiency by making the payment of differential interest of meagre amount of Rs.4,114.

The dispute in the present appeal is that the appellant has made default in payment of duty for the month of November 2009 on the due date i.e. 05.12.2009. In the grounds of appeal, the appellant has stated that the said amount was later made good by making payment in cash.

The Calcutta High Court in the case of M/s. Goyal MG Gases PvtLtd. vs. Union of India & Others categorically held that when Rule 8 (3A) is declared ultra vires by the different High Courts then the Revenue cannot take a different stand contrary to the said judgements.

The Gujarat High Court in the case of Indsur Global Ltd. v. UOI has declared the words “without utilizing Cenvat Credit” under Rule 8(3A) as ultra vires which means that the assessee can discharge duty by utilizing Cenvat Credit which is what exactly has been done in the instant case by the appellant.

The Tribunal of observed that “We find that the demand in the instant case has been raised for contravention of Rule 8(3A) of the Central Excise Rules restricting utilization of Cenvat credit during the period of default which provision has been declared ultra vires/invalid by Court, hence the demand cannot be sustained and the Appeal, thus, succeed on this count.”

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