Whether cash refund of unutilized credit on closure of factory is allowed?

PJ/CASE LAW/2015-16/2817

Case:-COMMISSIONER OF C. EX. & S.T., LUCKNOW VersusJAI GANPATI METALS

Citation:-2015 (322) E.L.T. 730 (Tri. - Del.)

Brief facts:- The Revenue is in appeal against the impugned order wherein the Commissioner (Appeals) has allowed the cash refund of unutilized credit lying in Cenvat account on closure of their factory under Rule 5 of Cenvat Credit Rules, 2004 read with Section 11B of Central Excise Act, 1944.

Appellant’s contention:-Ld. AR has relied on the Larger Bench decision of the Tribunal in the case of Steel Stripsv. C.C.E., Ludhiana- 2011 (269)E.L.T.257 (Tri.- LB) = 2012(26)S.T.R.270 (Tribunal - LB), this Tribunal has held that there is no provision under Rule 5 of Cenvat Credit Rules, 2004 to allow refund lying unutilized in Cenvat account on closure of the factory.

Respondent’s contention:- On the other hand, learned Consultant for the respondent relied on the decision of Hon’ble Karnataka High Court in the case of Slovak India Trading Co. Pvt. Ltd.- 2006 (201)E.L.T.559 (Kar.) = 2008 (10)S.T.R.101 (Kar.)wherein Hon’ble Karnataka High Court has framed the following three issues :-
(a)        Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no provision in Rule 5 of Cenvat Credit Rules, 2002, to refund the unutilized credit?
(b)        Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no production and there is no clearance of finished goods?
(c)        Whether under the facts and circumstances of the case the Tribunal is right in holding that respondent is entitled for refund even if it goes out of Modvat Scheme or Company is closed?
Hon’ble Karnataka High Court in para 5 of its judgment has held as under:-
There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacture as we see from Rule 5 itself. Admittedly in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection as rightly ruled by the Tribunal. The Tribunal has noticed that various case laws in which similar claims were allowed. The Tribunal, in our view, is fully justified in ordering refund particularly in the light of the closure of the factory and in the light of the assessee coming out of the Modvat Scheme. In these circumstances, we answer all the three questions as framed in para 17 against the Revenue and in favour of the assessee.

Reasoning of judgment:- In the case of Steel Strips, Larger Bench of this Tribunal although reference made to the decision of Slovak India Trading Co. Pvt. Ltd. (supra) but have not discussed the said decision. That decision is not applicable to the facts of case of Slovak India Trading Co. Pvt. Ltd. Further, they find that the decision of Hon’ble Karnataka High Court shall prevail over the decision of the Tribunal. In these circumstances, following the decision of Hon’ble Karnataka High Court in Slovak India Trading Co. Pvt. Ltd. (supra), they hold that the respondent is entitled to get refund lying unutilized in their Cenvat credit account on the closure of their factory. Therefore, they do not find any infirmity in the order of the Commissioner (Appeals).
The appeal filed by the Revenue is rejected.

Decision:- Appeal rejected

Comment:- The analogy of the case is that relying in the case of Slovak India Trading Co. Pvt. Ltd. it was concluded that the assessee is entitled to get refund of unutilized credit lying in their Cenvat credit account on the closure of their factory.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2817

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