Whether refund of accumulated credit of earlier period admissible if product becomes exempt later?

PJ/Case law/2014-15/2212

Case:- RAYMOND LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III

Citation:- 2011 (273) E.L.T. 582 (Tri. - Mumbai)

Brief facts:-Facts of the case are that the appellant is the manufacturer of yarn and textile. As per the Government policy on textile articles, the appellant has opted for exemption from payment of duty as provided under Notification No. 30/2004 dated 9-7-2004 with effect from July, 2004. Prior to July, 2004 the appellant was paying excise duty on the final product manufactured and removed by them. They were also availing CENVAT credit against the inputs and capital goods received in their factory which are used in the manufacturing of their final products. On the date of opting out of MODVAT scheme to exemption scheme under Notification No. 30/04, dated 9-7-2004, there was unutilized accumulated CENVAT credit balance of Rs. 31,20,523/- which was lying in their CENVAT credit account. The appellants filed the refund claim of the said amount as per Rule 5 of the Cenvat Credit Rules, 2004 which was denied by both the lower authorities. Against the said order, the appellant is before the Tribunal.

Appellant’s contentions:-Shri Prakash Shah, learned Advocate appeared for the appellant and submitted that the adjudicating authority has rejected their refund claim on the ground that the appellant has not produced any documents evidencing the export of goods for which they are claiming the above unutilized accumulated CENVAT credit as per Rule 5 of CENVAT Credit Rules, 2004. He further submitted that on appeal before the Commissioner (Appeals), the Commissioner (Appeals) also rejected their refund claim as the claim is not maintainable as per Rule 11(3)(i) of the Cenvat Credit Rules, 2004. In support of their claim, he submitted that the provisions of Rule 11(3)(i) were inserted into statute vide Notification No. 10/07 with effect from 1-3-2007. Therefore, as on 9-7-2004, these rules were not applicable to the case of the appellant as the provisions of Rule 11(3) are not made applicable retrospectively.

With regard to issue whether their refund claim is maintainable or not as per Rule 5 of the Cenvat Credit Rules, 2004, he relied on the decision of Union of India v. Slovak India Trading Co. Pvt. Ltd. - 2006 (201)E.L.T.559 (Kar.) = 2008 (10)S.T.R.101 (Kar.)which was affirmed by the Hon’ble Apex Court as reported in 2008 (223) E.L.T. A170 (S.C.). He also relied on the decision in the case of Jain Vanguard Polybutylene Ltd. v. CCE, Nashik - 2009 (247)E.L.T.658 (Tri. - Mumbai) which was affirmed by the Bombay High Court vide 2010 (256)E.L.T.523 (Bom.). He also relied on the decision of this Tribunal in the case of Shree Prakash Textiles (Guj.) Ltd. v. CCE, Ahmedabad - 2004 (169)E.L.T.162 (Tri. - Mumbai)and in the case of Bombay Dyeing & Manufacturing Co. Ltd. vide Order No. A/254/2007/C-I (EB), dated 10-4-2007. Therefore, he submitted that their refund claim is maintainable. In addition to the above submissions, Shri Prakash Shah submitted that the appellant has reversed the CENVAT credit involved in the inputs, work-in process and finished goods lying in their factory on the date of opting out of MODVAT scheme i.e. on 9-4-2004.

Respondent’s contentions:- Shri H.B. Negi, learned SDR appearing on behalf of the Revenue submitted that it is not coming out from the records, whether the appellant has reversed the CENVAT credit involved in inputs, work-in process and finished goods lying on 9-4-2004 or not. Therefore, it needs verification. He further submitted as per Rule 5 of the Cenvat Credit Rules, 2004 unutilised credit can be refunded in case of export only, therefore, the adjudicating authority has rightly rejected their refund claim. To support his contention he placed reliance on CCE, Chandigarh v. Rama Industries - 2009 (238)E.L.T.778 (Tri. - Del.) = 2010 (20)S.T.R.537 (Tri. - Del.). He also relied on the judgment in the case of CCE v. Chandra Laxmi Tempered Glass Co. Pvt. Ltd. - 2009 (234)E.L.T.245 (H.P.).

Reasoning of judgment:- The Hon’ble tribunal have considered the submissions made by both the sides in detail. There is no doubt that when the appellant has opted out from MODVAT scheme from July, 2004, therefore, the appellant are required to reverse CENVAT credit involved in input, work-in process and finished goods lying on stock on date of opting out of MODVAT scheme. They do agree that the contention of the learned SDR that the said fact is not ascertainable from the records, which needs examination.

They come to the issue whether the provisions of Rule 11(3) of the CENVAT credit are applicable to the case or not? Admittedly these provisions came with effect from 1-3-2007 and are not applicable retrospectively, therefore, the said provisions are not applicable to the facts of this case. Now, they come to the issue whether the claim of the appellant of refund is maintainable under Rule 5 of CENVAT Credit Rules, 2004 or not? As in the case of Slovak India Trading Co. Pvt. Ltd.(supra) the Hon’ble Karnataka High Court has answered the references in paragraph 5 of the order which is reproduced herein below :-

“5. There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case of 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.”

The view taken by the Hon’ble Karnataka High Court has been affirmed by the Hon’ble Apex Court. Therefore, they have no hesitation to follow the same. Accordingly, they allow the refund claim of the appellant lying unutilized accumulated in their CENVAT credit account on 9-7-2004 which do not include the credit involved in inputs, work-in process or finished goods lying in stock on 9-7-2004 i.e. the date of opting out of MODVAT scheme.

The matter is remanded back to the adjudicating authority to ascertain the fact whether the appellant has reversed the CENVAT credit involved in inputs, work-in process and finished goods lying in stock on 9-7-2004. If the appellant has reversed, then the balance amount accumulated unutilized in CENVAT credit account shall be sanctioned and refunded in cash. With these observations, the appeal is allowed by way of remand to examine as directed above. The refund claim of the appellant shall be disposed of within one month of the receipt of this order.

Decision:- The appeal was allowed.

Comment:- The case pertains to old provisions when Rule 11(3) of Cenvat Credit Rules, 2004 was not in force. The analogy of the case is that assessee eligible for the refund of unutilized accumulated CENVAT credit pertaining to earlier period when product was cleared on payment of duty, if the assessee has reversed credit involved in inputs, work in process and finished goods lying in stock on the date of opting out of MODVAT scheme. However, in the present scenario, Rule 11(3)(ii) specifically restricts even the utilisation of credit pertaining to earlier period from the date of availing absolute exemption and states that the credit stands lapsed.

Prepared by: Monika Tak

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PJ/Case law/2014-15/2212

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