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Rule 8(3A) of Central Excise Rules, 2002 is unconstitutional - Madras High Court reaffirms Indsur Global ratio

By TIOL News Service

CHENNAI, MAY 16, 2015: NETIZENS may recall the order of Gujarat High Court in case of Indsur Global Ltd., v. Union of India - 2014-TIOL-2115-HC-AHM-CX wherein it was held that Rule 8(3A) of the Central Excise Rules, 2002 is unconstitutional. Rule 8(3A) as it existed during the disputed period, barred the assessees from payment of duty from CENVAT Credit account during the period of default in payment of duty.

Recently, while disposing a batch of Writ Petitions, the High Court of Madras also followed the ratio of Indsur and reiterated that Rule 8(3A) is unconstitutional. The High Court held:

The relevant portion of Rule 8(3A) has been held to be ultra vires by the Gujarat High Court. We are in agreement with the reasoning of the Gujarat High Court. We, however, would also like to add our view as to why such a restriction imposed under sub-rule (3A) of Rule 8 of the Central Excise Rules is totally untenable.

The availment of CENVAT credit is a right that accrues to an assessee and denial of such credit can be made only by procedure prescribed by the law. The implication of CENVAT credit and the utilisation thereon has been clearly highlighted by the Supreme Court in paragraph-17 of the judgment in Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., 2002-TIOL-79-SC-CX-LB .

It is not the case of the Department in this batch of writ petitions that the petitioners-assessees have illegally or irregularly taken the CENVAT credit. The right to pay duty by utilising the CENVAT credit that had accrued cannot be defeated, unless it is a case of illegal or irregular credit. To that extent, we find this sub-rule (3A) arbitrary and therefore violative of Article 14. The right that has accrued to an assessee by way of CENVAT credit, that is duty paid on the inputs, cannot be taken away under a rule, which only provides for the manner and method of payment of duty and for levying of interest, if there is a default. The object of the term "without utilizing the CENVAT credit'' would run counter to the scheme of availment of the CENVAT credit on the duty paid inputs. It is a legitimate right that has accrued to an assessee and that cannot be denied arbitrarily under the provision under challenge. We, therefore, have no hesitation to concur with the reasoning of the Gujarat High Court that Rule 8(3A) is ultra vires of Article 14 on the ground of arbitrariness.

(See 2015-TIOL-1262-HC-MAD-CX)


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