Penalties set aside after payment of outstanding cess and applicable interest.

An audit identified alleged short payment of Education Cess and Secondary and Higher Education Cess (SHE Cess), irregular CENVAT credit and short payment of interest.

The adjudicating authority confirmed cess amounts of ₹86,782 and ₹43,426, respectively, with interest and equivalent penalty, and imposed other penalties under the Central Excise Act, 1944.

The Commissioner (Appeals) upheld the order, leading to this appeal.

The appellant stated that it had paid the cess and applicable interest, and relied, among other matters, on a prior Tribunal decision in its own case concerning Rule 8(3A) of the Central Excise Rules, 2002.

The Revenue disputed the appellant’s position on the interest shortfall and penalties and submitted that the cess payments had not been appropriated in the original order.

1. Whether the amounts paid by the appellant towards the confirmed cess liabilities and applicable interest should be appropriated against the demands.

2. Whether the penalties imposed for the alleged short payments, including the penalty linked to Rule 8(3A), were sustainable in the circumstances.

Rule 8(3A) of the Central Excise Rules, 2002, which concerned payment of duty during default, was held unconstitutional by the Gujarat High Court in Indsur Global Ltd. v. Union of India, 2014 (310) E.L.T. 833 (Guj.), and that ruling was followed by the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. v. Union of India, 2015 (323) E.L.T. 489 (Mad.), and A.R. Metallurgicals P. Ltd., 2015 (322) E.L.T. 49 (Mad.).

The Tribunal also referred to its earlier decision in the appellant’s own case, which applied those authorities and set aside a demand raised under Rule 8(3A).

The respondent relied on the proviso to Rule 3(4) of the CENVAT Credit Rules, 2004, concerning the extent of credit available for payment of duty for a particular month or quarter, and on Rule 8(3) of the Central Excise Rules, 2002, in support of the interest and penalty demands.

The Tribunal noted that the appellant had paid the amounts with applicable interest and had also paid the balance interest during the proceedings.

It considered the earlier decision in the appellant’s own case, which had set aside a demand under Rule 8(3A) in light of the cited High Court rulings.

On the evidence and the circumstances of the case, the Tribunal upheld appropriation of the amounts paid and set aside the penalties; it did not separately elaborate on the respondent’s Rule 3(4) argument.

The appeal was partly allowed.