CESTAT Ahmedabad Holds Rule 8(3A) Invalid After Indsur Global Ruling, Quashes ₹3.60 Crore Duty Demand

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 15 May held that once Rule 8(3A) of the Central Excise Rules, 2002 was declared ultra vires by the Gujarat High Court in Indsur Global Ltd. v. Union of India judgment, the Department could not demand excise duty merely because the taxpayer utilised CENVAT credit during the period of default in payment of duty.

Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh partly allowed the appeals and set aside the excise duty demand of Rs. 3.60 crore and the equal penalty imposed under Section 11AC. The Tribunal, however, clarified that interest liability on delayed payment of duty would survive. It held:

“Therefore, we are of the view that when provision itself has been declared ultra-vires, the demand of duty and consequential penalty on the Appellant-1 cannot be sustained.”

The dispute arose after the Department alleged that Shaifali Steels Ltd. delayed payment of Rs. 6.38 lakh relating to its February 2009 duty liability and thereafter wrongly utilised CENVAT credit amounting to Rs. 3.60 crore during the default period. Relying on Rule 8(3A), the Department issued a show cause notice seeking recovery of the entire amount along with interest and penalties.

Before the Tribunal, the taxpayer argued that Rule 8(3A) had already been held unconstitutional by the Gujarat High Court and several other Courts. The Department's representative also conceded that in light of the Indsur Global ruling, the duty demand and penalty were unsustainable.

The Bench held that the issue was no longer res integra after the Gujarat High Court judgment in Indsur Global Ltd., which the Supreme Court later affirmed. At the same time, it upheld the penalty imposed for delayed filing of ER-1 returns under Rule 27 after noting that the returns for March and April 2009 were admittedly filed beyond the prescribed due dates.

The Tribunal also upheld the personal penalty imposed on the authorised signatory after recording that he had knowingly misdeclared the payment particulars in the ER-1 return to mislead the Department regarding payment of duty. Referring to his statement, it noted that he admitted the incorrect disclosure was made “to mislead the department about the payment of duty.”

Accordingly, the CESTAT partly allowed the appeals.

Appearance for the Appellant: Shri Amal Dave, Advocate for the Appellant

Appearance for the Respondent: Shri R. Kumar, Superintendent (AR)