By TIOL News Service

AHMEDABAD, DEC 11, 2014: THE petitioners have challenged the vires of Subrule (3A) of Rule 8 of the CER, 2002 and also the communications raising duty demands & the SCN under which the adjudicating authority proposed to levy excise duty of Rs.1,06,26,770/- with interest and penalty.

The High Court observed that in a judgment dated 26-27/11/2014 in Special Civil Application No.3344 of 2014 in case of Indsur Global Ltd. v. Union of India - 2014-TIOL-2115-HC-AHM-CX , the Court considered a similar challenge of the petitioner to the vires of Sub-rule (3A) of Rule 8 of the CER, 2002 and Portion of the said rule which provides that the assessee would clear the goods on payment of excise duty "without utilizing CENVAT credit" to the extent the group of words indicated in the inverted comma were declared ultra vires and unconstitutional.

The High Court, therefore, held that since the statutory basis for issuance of a showcause notice and raising tax demand is knocked down, the very proceedings (impugned in the SCN under challenge) would have to be struck down.

In this matter the counsel for the Revenue submitted that during the pendency of this petition, the adjudicating authority passed the final order & which has not been challenged.

Attention of the High Court was also drawn to paragraphs 37 & 38 of the decision in case of Indsur Global Ltd. (supra) in which the Court, even while striking down the portion of sub-Rule (3A) of Rule 8, did not disturb the orders passed by the revenue authorities as upheld by the Tribunal, since such dispute had achieved finality. It was, therefore, urged that in the present case also the same course should be adopted.

The High Court disagreed with this plea of the counsel for the Revenue and observed -

++ There is vital difference between the two sets of facts. In the present case, the petitioner had raised the challenge to the statutory provisions even before the adjudicating authority had taken a final decision. He had, along with rule, also challenged the showcause notice.

++ In the case of Indsur Global Ltd. (supra) the petitioner had unsuccessfully challenged the order of the adjudicating authority. The appeal was dismissed by the Commissioner on the ground of delay beyond his power to condone. The Tribunal had dismissed further appeal on the ground of gross delay of three years in preferring the appeal before the Tribunal as also on the ground that in any case the Commissioner was right in not entertaining the appeal of the assessee which was presented along with the application for condonation of delay after the maximum period which the Commissioner could have condoned. It was in this background the Court held that the issues which are closed cannot be reopened. It was noted that there were other proceedings between the same assessee and department pending at various stages on same issue. It was, therefore, provided that the particular order in challenge would not be disturbed but that the benefit of declaration of invalidity of the rule would be available to the petitioner in other pending proceedings.

In fine, the High Court held that in view of clear distinction in facts, the modus adopted in the said case of Indsur Global Ltd. cannot be applied in the instant case.

The impugned tax demands and show cause notice were set aside and all subsequent actions taken by the department were set at naught.

The Petition was allowed.

(See 2014-TIOL-2211-HC-AHM-CX)