Rishi Chanan, B.A., LL.B, Advocate

Rule 8(3A) of Central Excise Rules, 2002 stipulats that if an assessee defaults in payment of duty beyond thirty days from due date, the assessee shall not eligible to utilize cenvat credit for payment of duty and have to pay the duty consignment wise.

This rule has a dragon eye on trade as it does not have any provisions for bonafide defaults and willful defaults. Also, in the case of Meenakshi Associates Vs CCE 2012-TIOL-587-CESTAT-DEL it was held that payment made through Cenvat during the defaulting period made good payment when the default is made good by paying differential duty alongwith interest and defaults in payment of duty is not short payment. As regards of penalty the Hon’ble Gujarat High Court in the case of 2010-TIOL-889-HC-AHM-CX has held that there was no intention on the part of assessee to evade any payment of duty. The penalty could not be levied under Rule 25 and only Penalty under Rule 27 be imposed. The Hon’ble Supreme Court has also affirm the judgment of Hon’ble High Court – 2013 (292) ELT A98 (SC). There are also numerous judgments on this issue.

Now, the Central Board of Excise & Customs has examined the need to review the Dragon Rule 8(3A) vide its letter issued under F. No.201/08/2013-CX-6 which reads as under:

F.No. 201/08/2013-CX-6 Ministry of Finance, Department of Revenue

Central Board of Excise and Customs, New Delhi

Subject: Review of Rule 8(3A) of the Central Excise Rules, 2002

Trade has represented that the provisions of Rule 8(3A) needs to be reviewed as the rule does not make a distinction between cases of bonafide mistake which can lead to default in payment of duty and cases of willful default.

2. Examination of the issue shows that tribunal has in judgments such as Meenakshi Associates [para 15 and 16 in 2012-TIOL-587-CESTAT], Baba Viswakarma Engg Co [para 11, 12 and 13 in 2012 (278) ELT 68]  and Bactolac Formulations [para 5 of 2012-TIOL-970-CESTAT] has allowed credit to be used even during the period of default.

3. Further, the enforcement of this rule for imposing penalty under rule 25 needs adjudication proceedings to be undertaken. In view of the above need for amending the rule is being examined. In this regard input from the field is needed on the following issues –

(i) Whether non-compliance of Rule 8(1) has become lesser by introduction of Rule 8(3A)?

(ii) Whether the rule is being enforced in all cases of default?

(ii) Whether goods cleared during the period of default are being seized as they are liable for confiscation?

(iii) In view of the judicial pronouncements listed at para 2, is the rule continuing to serve its purpose of timely and complete payment of duty?

(iv) Whether a rule of imposing automatic and mandatory penalty at the rate of 1% per month on the defaulted amount would better serve the purpose as it would reduce the grace period of 30 days given in the present rule, would do away with adjudication proceedings needed to impose penalty at present,

(v) Any other suggestion.



The above letter comes as hope for trade and industry. Let’s pray for beneficial Amendment.

(Author can be reached at rishichanan@yahoo.com or on cell no. Mobile No. 98158-28244 )

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