Aditya Auto Products & Engg (I) Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bangalore)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, considered an appeal filed by Aditya Auto Products & Engg (I) Pvt. Ltd. challenging the confirmation of short-paid Education Cess of Rs. 86,782, Secondary and Higher Education Cess of Rs. 43,426, applicable interest and penalties under the Central Excise Act, 1944. The dispute originated from an audit that identified delayed payment of central excise duty, irregular utilisation of CENVAT credit and short payment of interest. The adjudicating authority confirmed the demands and penalties through its order dated 30 June 2021, which was subsequently upheld by the Commissioner (Appeals) on 13 June 2022.
The appellant contended that the outstanding duty had been discharged through CENVAT credit in accordance with the applicable provisions, including Rule 8(3A) of the Central Excise Rules, 2002, as amended by Notification No. 19/2014-C.E. (N.T.). It further relied on Notification No. 12/2015-C.E. (N.T.) dated 30 April 2015, which permitted specified credits of Education Cess and Secondary and Higher Education Cess to be utilised towards payment of excise duty. The appellant maintained that financial constraints had caused the payment delays and that the department had been informed of the outstanding liabilities and subsequent payments through contemporaneous correspondence.
The appellant also relied on the Gujarat High Court judgment in Indsur Global Ltd. Vs Union of India and an earlier Tribunal decision in its own case, Final Order No. 41401/2025 dated 28 November 2025. In that earlier decision, the Tribunal had relied on judicial precedents concerning the constitutional validity of restrictions on CENVAT credit utilisation under Rule 8(3A) and set aside the disputed demand. During the present proceedings, the appellant also discharged the balance interest liability on 24 October 2025.
The Revenue maintained that the appellant had repeatedly defaulted in payment of excise duty between October 2014 and July 2016 and had improperly adjusted accumulated CENVAT credit against arrears. It sought confirmation of the outstanding interest and penalties, including an equivalent penalty of Rs. 1,30,208 under Section 11AC of the Central Excise Act, 1944, relating to Education Cess and Secondary and Higher Education Cess.
The Tribunal observed that the appellant had paid the entire amount along with applicable interest. Considering the evidence on record, the circumstances of the case and the ratio of the earlier Tribunal decision involving the same appellant, it upheld appropriation of the amounts already paid and set aside the penalties. Accordingly, the appeal was partly allowed. The order granted relief from penalties while recognising the payments of duty, cess and interest already made.
List of Cases Discussed
1. Indsur Global Ltd. Vs Union of India (Gujarat High Court); 2014 (310) E.L.T. 833 (Guj.). Relied upon for the finding that the restriction requiring defaulting assessees to discharge excise duty without utilising available CENVAT credit under Rule 8(3A) was unconstitutional.
2. Malladi Drugs & Pharmaceuticals Ltd. Vs Union of India (Madras High Court); 2015 (323) E.L.T. 489 (Mad.). Cited in the earlier Tribunal order for following the judicial view against the restriction on utilisation of CENVAT credit under Rule 8(3A).
3. A.R. Metallurgicals P. Ltd. (Madras High Court); 2015 (322) E.L.T. 49 (Mad.). Cited in the earlier Tribunal order as another High Court decision concerning the constitutional validity of Rule 8(3A).
4. DRD Body Tech’s (India) Pvt. Ltd. Vs Commissioner of Customs, Excise & Service Tax, Hyderabad (CESTAT Hyderabad); 2020 (374) E.L.T. 270 (Tri.-Hyd). Cited in the appellant’s earlier Tribunal decision as a precedent following the judicial interpretation of Rule 8(3A).
5. Praweg Conveyors Vs Commissioner of Customs, Excise, Kalyan-III (CESTAT Mumbai); 2016 (337) E.L.T. 450 (Tri.-Bom). Cited in the earlier Tribunal order concerning the sustainability of excise demands under Rule 8(3A).
6. Aditya Auto Products & Engg (I) Pvt. Ltd. (CESTAT); Final Order No. 41401/2025; 28/11/2025. The Tribunal’s earlier decision involving the same appellant was considered while deciding the present appeal. It had set aside a demand relating to Rule 8(3A) after following the cited judicial precedents.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
The issue in the present appeal is regarding short payment of CESS with interest and whether penalties imposed under various provisions of law are sustainable. During the course of audit of the appellants, certain short payments, irregular availment of cenvat credits and short payment of interest were noticed and a show-cause notice was issued. It was adjudicated as per the Order-in-Original No.47/2021 dated 30.06.2021, short payment of cesses of Rs.86,782 (Education) and Rs.43,426/- (SHE cess) was confirmed with interest and equivalent penalty and other penalties were imposed under Central Excise Act, 1944. Aggrieved by said order, an appeal was filed before the Commissioner (Appeals) and the Commissioner (Appeals) as per the impugned order dated 13.06.2022 rejected the appeal and upheld the Order-in-Original. Aggrieved by said order, present appeal is filed.
2. When the appeal came up for hearing, learned Consultant for the Appellant submits that as evident from the letter dated 11.08.2022, it is clarified that payment has been made in terms of provisions as contain under Section 142(8) of the CGST, 2017 read with saving clause provision of Section 174 towards the central excise duty arising out of the audit objections have been paid under CGST. Learned Consultant further submits that when payment of defaulted duty is allowed from CENVAT credit account, there is no other way than to meet the same from credit accrued. If credit was available before default, question of default can never arise. The Appellant had requested the Adjudication authority to consider said aspect before arriving a decision alleging contradiction of provisions of Rule 8(3A) of the Central Excise Rules, 2002. Further as regarding Education CESS, Learned Consultant submits that similarly, with regard to the education cesses allegedly short paid, it may be noticed that vide Notification No. 12/2015-C.E. (N.T.), dated 30-4-2015, third proviso to Rule 3(7)(b) has been inserted mentioning that:-
“Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise leviable under the First Schedule to the Excise Tariff Act:
Provided also that the credit of balance fifty per cent. Education Cess and Secondary and Higher Education Cess paid on capital goods received in the factory of manufacture of final product in the financial year 2014-15 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act:
Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on input services received by the manufacturer of final product on or after the Ist day of March, 2015 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act.”.
3. Learned Consultant further submits that Rule 8(3A) of the Central Excise Rules, 2002, has undergone drastic changes with effect from 11.07.2014 vide Notification No. 19/2014-C.E. (N.T.), dated 11-7-2014. The restriction for utilization of CENVAT credit for payment of arrears of duty has been completely removed subject to the condition that penalty of 1% per month is required to be discharged when the duty is paid either through account current or through CENVAT credit account. Prior to 11.07.2014, a number of issues were raised regarding utilization of CENVAT credit for payment of defaulted duty. However, these doubts were laid to rest by a plethora of judicial pronouncements wherein it was clearly held that Insistence that assessee must pay such duty without utilising Cenvat credit, which is duty on various inputs already paid by him, is harsh and out of proportion to aim sought to be achieved. It is wholly arbitrary and unreasonable as held in the matter of Indsur Global Ltd Vs UOI – 2014 (310) E.L.T. 833 (Guj.). Learned Consultant further submits that, in case the payment is made by cash, the same becomes eligible for refund as CENVAT credit was utilized for payment of duties. In terms of Section 142(8)(b) of the CGST Act, 2017, any refund arising under the then existing law, becomes payable by cash. Hence, making payment and once again getting refund becomes a neutral exercise and hence, on this ground also, there is no liability to pay by cash.
4. Learned Consultant further submits that substantial portion of the demand was paid and delay was due to financial difficulty is beyond the control of the Appellant. In this regard, Learned Consultant draw our attention to large number of communications regarding the reason for non-payment of duty payable from time to time. As per letter dated 06.11.2014 for ER-1 October, 2014. It is submitted that:-
This is to inform you that we have filed the ER-1 return for the month of September 2014 without payment of duty amounting to Rs. 2060814/-(Twenty Lakh Sixty thousand Eight Hundred and Fourteen only) default due to certain unavoidable fund constrains. We would like to bring to your kind notice that we are arranging to deposit the same on or before 20.11.2014 along with interest with the intimation to you.
Similar communications were made for the subsequent period on 31.12.2014 as reproduced below:-
We bring to your kind notice that we have paid the duty amount of Rs. 2060814/-for October 2014 and Rs. 1405340/- partly for the month of November 2014 on 31.12.2014 which were earlier not paid by us by default through our cenvat accrued in the month of December 2014.
The interest 56912/- and penalty 41216/- for October 2014 and Interest amount for November 2014 part payment for RS. 18019/- were paid by us vide e payment challan no 000345 & 000308 dated 31.12.2014 respectively. We are enclosing herewith the e-payment challans for your ready reference.
5. When it is observed that there is a short payment of interest, as per the Daily order dated 13.10.2025, Appellant were directed to discharge their interest liability pertains to the relevant period and as per the additional submission made by the Appellant, the balance amount has been paid on 24.10.2025. Learned Consultant further submits that the issue regarding delayed payment and penalty was considered in Appellant’s own case by the Tribunal and as per Final Order No. 41401/2025 dated 28.11.2025, it is held as under:
4. After hearing both sides and on perusal of records, we find that the issue that arises for our consideration in the present Appeal is, “whether demand of Central Excise Duty Raised under the provisions of Rule 8(3A) of Central Excise Act is sustainable or not?”
5. We find that the provisions of Rule 8 (3A) have been held ultra vires as unconstitutional by the Hon’ble Gujarat High Court in Indsur Global Ltd. v. Union of India 2014 (310) ELT 833 (Guj.) which has been followed by the Jurisdictional Hon’ble High Court of Madras in Malladi Drugs & Pharmaceuticals Ltd. vs. Union of India 2015 (323) ELT 489 (Mad) and A.R. Metallurgicals P. Ltd. 2015 (322) ELT 49 (Mad.). The judgement (supra) has been followed by the Tribunal in the following decisions:
(1) DRD Body Tech’s (India) Pvt. Ltd. vs. Commissioner of Customs, Excise & Service Tax, Hyderabad 2020 (374) ELT 270 (Tri.-Hyd) (ii) Praweg Conveyors vs. Commissioner of Customs, Excise, Kalyan-III, 2016 (337) ELT 450 (Trl.-Bom).
Following the judicial discipline, the demand in the impugned order cannot sustain and accordingly the impugned order is set aside. Appeal is allowed with consequential benefits, if any, as per law.
6. Learned AR reiterated the finding in the impugned order and as regarding Short payment of interest of Rs.1,00,886/- and penalty of Rs.3,00,832/- in terms of Rule 8 (3) of the Central Excise Rules, 2002, Learned AR submits that the appellants had short paid duties every month from October 2014 to July 2016 (declared liability) but adjusted the amount of Cenvat credit earned/accumulated in the succeeding months by “declaring the same as payment of arrears”. As per proviso to sub rule (4) of Rule 3 of Cenvat Credit Rules, 2004, while paying duties of excise or service tax, as the case may be, the CENVAT Credit shall be utilised only to the extent of such credit which is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or quarter, as the case may be. The short payment of interest of Rs.1,00,886/- and Penalty in terms of Rule 8 (3) of the Central Excise Rules is mandatory and payable by the appellants in view of the findings by both Original Authority and Appellate Authority.
7. As regarding Short payment of Rs.86,782 (Education Cess) and Rs.43,426/- (SHE Cess), applicable interest and penalty, Learned AR submits that as per the submission made by the Appellant, they have paid the above said amounts during the year 2022 and paid the interest amount of Rs.1,45,821/- being the interest for the delay in payment of Cesses. On perusal of the OIO the amount said to be paid is not appropriated and hence the same along with the applicable interest payable and paid during the course of hearing before this Tribunal needs confirmation. Learned AR further submits that since the appellants have accepted the liability, they are liable to pay the Equivalent Penalty of Rs.1,30,208/- under Section 11 AC of the CEA, 1944.
8. Heard both sides. As per the evidence on record, we find that the Appellant had paid entire amount with interest as applicable. Considering the facts and circumstances of the case, and also considering the ratio of the decision of the Tribunal in Appellant’s own case, appropriation of the amount paid by the Appellant is upheld and penalties are set aside.
9. Accordingly, Appeal is partially allowed.
(Order pronounced in Open Court on 07.10.2026)
