Varun Vijay Gupta vs. Union Of INDIA

Held

The Court held that Circular No. 962/05/2012-CX dated 28.03.2012 is discriminatory and arbitrary, violating Article 14 of the Constitution of India. The Court reasoned that the first proviso to Rule 3(4) of the Cenvat Credit Rules, 2004, which restricted the utilization of Cenvat credit to the amount available on the last day of the month, was contrary to the Apex Court's decision in *Collector vs. Dai Ichi Karkaria Ltd.* and also conflicted with Rule 8(1) of the Central Excise Rules, 2002. The Court noted that Cenvat credit is indefeasible and has no direct correlation with specific raw materials or final products, meaning legally availed credit should be usable. Consequently, the impugned circular, which drew support from this invalid proviso, was also declared illegal. The Court further declared that the petitioner is entitled to utilize their Cenvat credit balance for outstanding excise duty liabilities, referencing the decision in *Advance Surfactants India Ltd.*. The proceedings for recovery initiated by the impugned notices dated 04.04.2018 and 04.05.2018 were directed to be dropped. The petitioner's offer to pay outstanding dues from available Cenvat credit was accepted.

Facts

The petitioner, Managing Director of Steel Konnect (India) Pvt. Ltd., faced a Central Excise liability of approximately Rs. 1,01,00,000/- in January 2016. Following a notice and visit by excise officers, an attachment notice was issued. The petitioner offered to pay the outstanding duty using Cenvat credit, but the Assistant Commissioner objected, relying on Circular No. 962/05/2012-CX dated 28.03.2012. The petitioner argued that this circular discriminated between admitted duty liability and duty liability arising under Section 11A of the Excise Act for Cenvat credit utilization. The Assistant Commissioner maintained that Cenvat credit could not be used for delayed payment of admitted duty liability, citing the circular, and threatened criminal action. The petitioner then approached the High Court.

Key Issues

1. Whether Circular No. 962/05/2012-CX dated 28.03.2012 is discriminatory, arbitrary, and contrary to the provisions of the Excise Act and Rules, specifically concerning the utilization of Cenvat credit for admitted duty liability? (Question of law) 2. Whether Cenvat credit balance can be utilized for making payment of outstanding excise duty liability admitted in the returns? (Question of mixed law and fact) Petitioner's arguments: The petitioner argued that the impugned circular is discriminatory and contrary to the Excise Act and Rules, erroneously relying on the first proviso to Rule 3(4) of the Cenvat Credit Rules, 2004. They contended that this issue was concluded by the Gujarat High Court's decision in *Advance Surfactants India Ltd. vs. Union of India*, which held the proviso to Rule 3(4) to be contrary to Rule 8(1) of the Central Excise Rules, 2002. Therefore, the circular based on this proviso should also be illegal. Revenue's arguments: The revenue supported the Assistant Commissioner's stand, arguing that unutilized Cenvat credit cannot be used for outstanding excise duty. They relied on Rule 3(4) of the Cenvat Credit Rules and the impugned circular, asserting that Cenvat credit can only be utilized to the extent available on the last date of the month. This proviso, they argued, prevented the utilization of Cenvat credit availed in subsequent months for duties of the previous month, thus validating the circular.