Refund of Unutilised Cenvat Credit on closure of factory

PJ/Case Laws/2011-12/1256

Refund of Unutilised Cenvat Credit on closure of factory - Allowability of

Case: STEEL STRIPS V/s COMMISSIONER OF C. EX., LUDHIANA

Citation: 2011(269) E. L.T. 257 (Tri-LB)

Issue:- Whether refund of unutilised Cenvat Credit will be admissible on closure of unit under Rule 5 of CCR’04?

Brief facts:- The assessee had paid the duty through PLA account on account of coercion by the Department or otherwise, inspite of having sufficient balance in the modvat/Cenvat credit, on the factory or unit becoming inoperative and there being no likelihood of restarting the production, assessee filed for refund of the credit amount under the provisions of law in force

Appellant’s Contention:- Appellant submitted that

1. Rule 5 permits refund and there is no bar in law to grant refund of unutilized Modvat credit when the inputs have undergone manufacture. Whatever may be the reason of accumulation of input credit that remaining unutilized is to be refunded. The precedence of Tribunal in respect of refund of unutilized credit has been upheld by the Apex Court. That has entitled the assessee to press their refund claim. For such sub-mission reliance was placed on the decision in the case of Hutch Associated Cement Companies Ltd., Jabalpur v. Collector of Central Excise, Indore - 1987 (27) E.L.T. 764 (Tribunal).

2. It was also argued that when the Revenue did not appeal against the decisions in Eicher Tractor - 2002 (147) E.L.T. 457, Shree Prakash Textile . 2004 (169) E.L.T. 162, Babu Textile Industries - 2003 (158) E.L.T. 215, and Arcoy Industries - 2004 (170) E.L.T. 507 (Ref. para 13 of referral order), correctness of judgment of the Slovak India Trading Co. Pvt. Ltd. - 2006 (201) E.L.T. 559 (Kar.) cannot be questioned by Revenue before Larger Bench. To submit so, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Berger Paints India Ltd. v. Commissioner of Income Tax, Calcutta, reported in 2004 (165) E.L.T. 488 (S.C.).

3. It was further submitted that there is no bar to give cash refund when an assessee ceases to exist and manufacturing operation comes to an end and there exists no Modvat account into which refund can be credited following the decision in CC&CE, Bhopal v. Bombay Burmah Trading Corpon. Ltd., reported in 2005 (190) E.L.T. 40 (Tri.- Del.). Reliance was also placed on the decision of Rama Industries Ltd. v. CCL, Chandigarh reported in 2009-TIOL-100-HC-P&H-CX to submit that when Hon'ble High Court of Kamataka has decided to grant refund under Rule 5 of the Cenvat Credit Rules, 2002 and that ends litigation of Revenue.

Respondent’s Contention:- Revenue contended that adjustment of input credit was permitted against duty liability on manufactured goods by process of law. When law grants adjustment that should also govern refund, if any to be made, when input credit remained unutilized. There was no compulsion to make payment of excise duty through the PLA if there is eligibility to Modvat credit adjustment. Plea of refund does not arise without sanction of law without mandate and refund is granted by an order for that purpose. The Larger Bench decision relied upon by Assessee is of no consequence since that decision has failed to consider scheme of Modvat credit and has exceeded its advisory and consultative jurisdiction exercising powers of an equity Court not vested with Tribunal.

2. Revenue's further argument was that courts cannot compel forma lion of policy decision to suit to a particular manufacturer or claim and accumulated credits in the Modvat account is not allowable to be refunded in cash following the decision of the Apex Court in Kusum Products Ltd. v. UOI - 2003 (157) E.L.T. 258. Plea of the assessees that they are entitled to refund of the credit under Rule 5 of Cenvat Credit Rules, 2002 is baseless in absence of the mandate of the 1994 Rules.

3. The 1994 Rule had provision for refund of the input credit subject to such safeguard, conditions and limitations as specified by Central Government by notification where the input credit remained unutilized due to final product being cleared for export under bond or letter of undertaking as the case may be, or used in the intermediate product cleared for export and for any reason adjustment of input credit is not possible. But the assessees in the batch of reference had no such case. The provisions of Rule 5 of Cenvat Credit Rules, 2002 cannot be equated with the erstwhile Modvat procedure.

4. Learned D.R. relying on the judgment of the Apex Court in the case of Eicher Motors Ltd. v. UO1-1999 (106) E.L.T. 3 (S.C.) submitted that Apex Court has not permitted any claim to be construed as vested right which did not arise under the law. Unless a right is conferred by law to get refund of the nature claimed in the present reference, that should be extinct.

5. Learned DRrelied on the judgment of Nahar Industries Ltd..'. Union of India - 2009 (235) E.L.T. 22 (P & H) to submit that an assessee is not entitled to refund of duty in cash regardless of mode of payment of the same unless authorized by law for such refund.

Reasoning of Judgement:- It was held that Modvat law has codified procedure for adjustment of duty liability against Modvat Account. That is required to be carried out in accordance with law and unadjusted amount is not expressly permitted to be refunded. In absence of express provision to grant refund, that is difficult to entertain except in the case of export. There cannot be presumption that in the absence of debarment to make refund in other cases that is permissible Law has only recognized the event of export of goods for refund of Modvat credit as has been rightly pleaded by Revenue and present reference is neither the case of "otherwise due" of the refund nor the case of exported goods. Similarly absence of express grant in statute does not imply ipso facto entitlement to refund.

Decision:- The question referred in referral order is answered as per above and in negative. Registry is required to place the respective cases before appropriate Bench to decide the Appeals.

Comment:- It is very interesting to note that in CCR, 2004, there is no provision of refund of unutilised cenvat credit on closure of factory, however in many cases assessee has been granted refund on closure of factory but that depends on circumstances and facts of each case. In the present case, Tribunal has taken a strict view.

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PJ/Case Laws/2011-12/1256

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