The requirement to pay excise duty without utilising CENVAT credit is unconstitutional.

The Revenue filed appeals against orders of the CESTAT concerning the consequences of alleged defaults in payment of central excise duty and the applicability of Rule 8(3A) of the Central Excise Rules, 2002.

In Tax Appeal No. 170 of 2012, the Tribunal reduced the penalty imposed under Rule 25 from ₹11,05,439 to ₹5,000. In Tax Appeal No. 289 of 2013, it reduced a penalty of ₹69,14,103 to ₹60,000.

The later appeals challenged the Tribunal’s reliance on the Gujarat High Court’s decision in Indsur Global Ltd. v. Union of India, which had declared unconstitutional the portion of Rule 8(3A) requiring payment of duty without utilisation of CENVAT credit.

The parties informed the Court that the Revenue’s appeal against Indsur Global before the Supreme Court had been withdrawn and disposed of on the ground of low tax effect under the CBIC Circular dated 22 August 2019.

Whether the CESTAT was justified in reducing the penalty imposed under Rule 25 of the Central Excise Rules, 2002 from ₹11,05,439 to ₹5,000 in Tax Appeal No. 170 of 2012?

Whether the CESTAT was justified in reducing the penalty of ₹69,14,103, equivalent to the central excise duty confirmed, to ₹60,000 in Tax Appeal No. 289 of 2013?

Whether the CESTAT could rely upon Indsur Global while considering the validity and operation of Rule 8(3A) of the Central Excise Rules, 2002, including the consequences and penal provisions applicable to an assessee in default?

Whether any substantial question of law arose from the impugned CESTAT orders in view of the finality of the legal position declared in Indsur Global?

Rule 8(1) and (3) of the Central Excise Rules, 2002 governed the time and manner of payment of excise duty and imposed interest on delayed payment.

The then-prevailing Rule 8(3A) required an assessee whose default continued beyond thirty days to pay duty consignment-wise and, among other things, prohibited utilisation of CENVAT credit until the outstanding duty and interest were paid.

In Indsur Global Ltd. v. Union of India, the Gujarat High Court held that the requirement to pay duty “without utilizing the CENVAT credit” was arbitrary, disproportionate and violative of Articles 14 and 19(1)(g) of the Constitution, and declared that portion invalid.

The decision further held that Rule 8(3A) was a collection mechanism framed under the Central Excise Act, 1944, particularly Section 37(1) and Section 37(2)(ib), but that its restriction on CENVAT utilisation exceeded constitutional limits.

Since the Revenue’s challenge to Indsur Global had been withdrawn before the Supreme Court and disposed of on the ground of low tax effect, the High Court treated that decision as having achieved finality.

The Court observed that the central legal issue in the appeals—whether an assessee in default could be compelled under Rule 8(3A) to pay excise duty without utilising available CENVAT credit—was directly governed by Indsur Global.

That decision had invalidated the relevant restriction because it imposed an excessive and disproportionate burden on assessees, including those whose defaults resulted from temporary financial difficulties rather than an intention to evade duty.

The Court further noted that the Revenue’s challenge to that ruling was no longer pending on merits, having been withdrawn and disposed of for low tax effect.

Consequently, the Tribunal’s reliance on Indsur Global could not be characterised as legally erroneous, and the proposed questions concerning Rule 8(3A), the withdrawal of CENVAT credit facility and the related penalties did not give rise to any substantial question of law.

No substantial question of law arose from the impugned CESTAT orders.

Accordingly, Tax Appeal Nos. 170 of 2012, 289 of 2013, 167 of 2025 and 671 of 2025 were dismissed.