Unconstitutional Restriction on CENVAT Credit: CESTAT Sets Aside Penalty and Demand Based on Invalid Rule 8(3A) of Central Excise Rules
In view of settled legal position, Tribunal held that demand raised under said provision could not be sustained
The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has set aside a central excise duty demand raised under Rule 8(3A) of the Central Excise Rules, 2002, holding that the provision had already been declared unconstitutional by multiple High Courts and the issue was no longer res integra. The appeal was filed by M/s Finproject India Pvt....
The New Delhi Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has set aside a central excise duty demand raised under Rule 8(3A) of the Central Excise Rules, 2002, holding that the provision had already been declared unconstitutional by multiple High Courts and the issue was no longer res integra.
The appeal was filed by M/s Finproject India Pvt. Ltd., challenging the Order-in-Appeal dated July 10, 2018, by which the Commissioner (Appeals), Jaipur had upheld an earlier order confirming demand and penalty for alleged default in payment of education cess.
The dispute arose from a short payment of education cess amounting to ₹1,392 for the month of March 2014. Although the assessee had indicated in ER-1 return that the amount would be paid shortly, the payment was eventually made only on December 16, 2014. A show cause notice was thereafter issued for the period from May 1, 2014 to December 15, 2014, proposing recovery of central excise duty under Rule 8(3A) along with penalty. The Joint Commissioner confirmed the demand by order dated July 5, 2017, which was later upheld in appeal.
During the course of hearing, reliance was placed on the decision of the Gujarat High Court in Indsur Global Ltd. v. Union of India, wherein the condition under Rule 8(3A) mandating payment of duty without utilisation of CENVAT credit was struck down as arbitrary, unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution.
The Tribunal noted that the judgment in Indsur Global had been followed by several other High Courts, including the Allahabad, Punjab and Haryana, Delhi and Madras High Courts. The departmental representative conceded that the issue was covered by the decision in Indsur Global.
In view of the settled legal position and the declaration of unconstitutionality of Rule 8(3A), the Tribunal held that the demand raised under the said provision could not be sustained.
Accordingly, the impugned order dated July 10, 2018 was set aside and the appeal was allowed.
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