CESTAT Quashes Excise Duty Demand Raised Under Unconstitutional Rule 8(3A)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a substantial central excise duty demand after holding that the recovery was based on Rule 8(3A) of the Central Excise Rules, 2002—a provision already declared unconstitutional by multiple High Courts and affirmed by the Supreme Court. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the restriction imposed under sub-rule (3A) of Rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing Cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail. The case arose from a minor default in payment of education cess amounting to ₹1,392 for March 2014. Although the assessee disclosed the unpaid amount in its ER-1 return and eventually paid it in December 2014, the delay exceeded one month from the due date. Based on this default, the department issued a show cause notice in May 2015 covering the period from May 1, 2014, to December 15, 2014, invoking Rule 8(3A) of the Central Excise Rules, 2002. The Joint Commissioner confirmed the demand in July 2017 along with penalties, and the Commissioner (Appeals) upheld the order in July 2018. Before its amendment on July 11, 2014, Rule 8(3A) mandated that if an assessee defaulted in duty payment beyond 30 days, it was required to pay excise duty on each clearance without utilising CENVAT credit until the entire outstanding amount with interest was paid. Any violation attracted harsh consequences, including treating clearances as made without payment of duty. After July 11, 2014, the rule was amended to replace this stringent mechanism with a monetary penalty of 1% per month on delayed payment, significantly softening the compliance framework. The CESTAT noted that the very foundation of the demand—Rule 8(3A) (to the extent it prohibited use of CENVAT credit)—had already been struck down as unconstitutional by the Gujarat High Court in Indsur Global Ltd. v. Union of India. The High Court had held that forcing an assessee to pay duty without utilising legitimately earned CENVAT credit was arbitrary, irrational, and violative of Articles 14 and 19(1)(g) of the Constitution. Importantly, the Tribunal took note that the department’s civil appeal against the Indsur Global judgment was dismissed by the Supreme Court on July 29, 2024, making the legal position final. The CESTAT also observed that several other High Courts—including those of Allahabad, Punjab & Haryana, Delhi, and Madras—had consistently followed the same view, striking down the restrictive portion of Rule 8(3A). During the hearing, the departmental representative fairly conceded that the issue was squarely covered by the Indsur Global judgment and subsequent rulings, leaving little scope for sustaining the demand. Holding that a demand raised under an unconstitutional provision cannot survive, the Tribunal set aside the appellate order. Consequently, the entire excise duty demand and penalty confirmed under Rule 8(3A) were quashed, and the appeal was allowed. Case Details Case Title: M/s Finproject India Pvt. Ltd. Versus Pr. Commissioner of CGST & Central Excise Case No.: Excise Appeal No. 53661 Of 2018 Date: 16/12/2025 Counsel For Appellant: None Counsel For Respondent: Ratnesh Kumar Mishra Click Here To Read Order Read More: Importer Lacked Knowledge of Fraudulent Duty Credit Scrip: CESTAT Quashes Rs. 10 Lakh Penalty

CESTAT Quashes Excise Duty Demand Raised Under Unconstitutional Rule 8(3A)

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