CESTAT Quashes Rs. 3.60 Crore Excise Demand; R. 8(3A)-Based Recovery Held Unsustainable

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a central excise duty demand of ₹3.60 crore and the corresponding equal penalty imposed on a steel manufacturer after holding that the demand was based on Rule 8(3A) of the Central Excise Rules, 2002 — a provision already declared ultra vires by higher courts. However, the bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) simultaneously upheld penalties relating to delayed filing of returns and sustained personal penalty against the company’s authorised signatory for deliberate misdeclaration in statutory filings. The dispute arose in the case of M/s Shaifali Steels Ltd., engaged in manufacturing Ferro Silicon Magnesium Alloy, CI Castings and metal rolls. During scrutiny of ER-1 returns for February 2009, the department noticed that against excise duty liability of ₹91.91 lakh, the company had disclosed payment of ₹85.52 lakh through Cenvat credit and ₹6.38 lakh through a TR-6 challan. Subsequent investigation, however, revealed that the amount of ₹6.38 lakh had not actually been deposited on the date shown in records and was instead paid several months later. According to the department, because the cash component of duty remained unpaid beyond thirty days from the due date, Rule 8(3A) became applicable. Under the provision existing at the relevant time, a manufacturer defaulting beyond the prescribed period was required to discharge excise duty on each consignment basis without utilizing Cenvat credit. Despite this alleged default, the department found that the company had utilized Cenvat credit amounting to approximately ₹3.60 crore between April and September 2009. A show cause notice was therefore issued proposing recovery of ₹3.60 crore under Section 11A of the Central Excise Act along with interest and penalties. Equal penalty under Section 11AC was proposed against the company, while a separate penalty was also sought against its authorised signatory, Shri Rameshbhai Fulshankar Trivedi. Before the Tribunal, the appellant argued that the very basis of the demand was legally untenable because Rule 8(3A) had already been declared invalid by judicial precedents. Reliance was placed upon the Gujarat High Court decision in Indsur Global Ltd., which held the relevant portion of Rule 8(3A) unconstitutional, a view later affirmed after dismissal of the Union of India's challenge before the Supreme Court. The company also contended that utilization of Cenvat credit amounted to payment of duty and that any direction requiring re-payment through PLA would merely create a revenue-neutral situation. The Tribunal noted that the controversy was no longer open to debate. It observed that the Gujarat High Court had already held the relevant provisions of Rule 8(3A) to be ultra vires and that the Supreme Court had declined to interfere with that ruling. Since the legal foundation of the demand itself no longer survived, the Tribunal held that recovery proceedings based upon such provision could not continue. Accordingly, the Tribunal set aside the demand of ₹3.60 crore and also quashed the equal penalty imposed under Section 11AC. Nevertheless, it clarified that liability relating to interest arising from delayed payment of duty would continue to survive. The Tribunal, however, did not grant complete relief to the appellants. It observed that the ER-1 returns for March and April 2009 had admittedly been filed after the prescribed due dates. Therefore, the penalty imposed under Rule 27 for delayed filing of returns was upheld. Significantly, the Tribunal also upheld the personal penalty imposed on the company's authorised signatory. It recorded that he had knowingly shown payment of duty in the ER-1 return although the amount had not actually been deposited. The order referred to his own statement where he admitted awareness of the incorrect disclosure and acknowledged that the wrong details were intentionally inserted to create an impression before the department that the duty had already been paid, thereby allowing continued utilization of Cenvat credit. On this basis, the Tribunal concluded that the authorised signatory had knowingly participated in misdeclaration and suppression of facts. Consequently, the personal penalty under Rule 26 was sustained. Case Details Case Title: M/S. Shaifali Steels Ltd Versus Commissioner Of Central Excise- Ahmedabad-III Citation: JURISHOUR-1413-CES-2026(AHM) Case No.: Excise Appeal No. 214 Of 2012 Date: 15.05.2026 Counsel For Appellant: Amal Dave, Advocate Counsel For Respondent: R. Kumar, Superintendent (AR) Click Here To Read Order Read More: Supreme Court Grants Notional Promotion to Railway Doctor

CESTAT Quashes Rs. 3.60 Crore Excise Demand; R. 8(3A)-Based Recovery Held Unsustainable

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