Whether refund of unutilised cenvat balance admissible due to closure of factory?

PJ/CASE LAW/2015-16/2914

Case:- CENTURY RAYON - TWISTING UNIT VERSUS COMMISSIONER OF C. EX., THANE-I

Citation:- 2015 (325) E.L.T. 205 (Tri. - Mumbai)

Brief facts: - This appeal is directed against Order-in-Appeal No. SB/61/TH-I/2010, dated 28-4-2010 vide which the ld. Commissioner rejected the appeal of the appellant.
Briefly, the facts of the case are that the appellant was engaged in the manufacture of excisable goods i.e. twisting of viscose filament yarn falling under Chapter Heading 54 of CETA, 1985 and were availing Cenvat credit for the duties paid on various capital goods and input services used in or in relation to the manufacturing process. The appellant after carrying out business for a period of 2 years closed down the operation as he found the business of twisting yarn was not commercially viable and accordingly surrendered their excise registration certificate vide letter dated 15-5-2007 addressed to the Asst. Commissioner of Central Excise, Kalyan. Thereafter, the appellant filed a refund application claiming refund of unutilised Cenvat credit of Rs. 85974/-. The Asst. Commissioner had rejected the refund of the appellant vide order dated 19-10-2007 on the ground that in terms of Rule 11(2) of Cenvat Credit Rules, 2004, unutilised credit would lapse on closure of the unit. The appellant filed appeal before the Commissioner (Appeals), which was dismissed by order dated 28-4-2010. Aggrieved by the same, appellant is before this Tribunal in this present appeal.

Appellant’s contention:- Ld. counsel for the appellant submitted that the impugned order passed by the Commissioner (Appeals) is not sustainable in law as the same has been passed by misinterpreting the relevant provisions of law. He further submitted that in Para 9 of the impugned order the respondent agreed in principle that the appellant is entitled to get the refund but still rejected the same on the ground of non-submission of required documentary evidence. He further submitted that the appellant has filed the copy of ER return along with application for refund which clearly shows unutilised balance of Cenvat credit during the relevant period. In support of their claim of refund, the appellant has relied upon the decision of the Karnataka High Court in Slovak India Trading Co. P. Ltd. reported in 2008 (10) STR 101 (Kar.) = 2006 (201)E.L.T.559 (Kar.)wherein it has been held by the Hon’ble High Court as under : -
“Refund - Cenvat/Modvat - Unutilised credit - Assessee stopped production due to closure of factory and came out of Cenvat scheme - Rule 5 of Cenvat Credit Rules, 2002 does not expressly prohibit refund of unutilised credit where there was no manufacture in the light of closure of factory - Moreover, since assessee has come out of Cenvat scheme, refund of unutilised credit has to be made - Section 11B of Central Excise Act, 1944 - Rule 5 ibid. [para 5]”
This decision was upheld by the Apex Court by dismissing the SLP of the department as reported in 2008 (223) E.L.T. A170 (S.C.).
The appellant also relied upon CCE Tirupativ. Kores (India) Ltd. [2009 (245)E.L.T.411 (Tri.-Bang.) = 2011 (22)S.T.R.361 (Tribunal)]wherein it has been held as under :
“Refund of Cenvat/Modvat - Unutilised credit lying with assessee on account of closure of factory - Well settled law that amount of credit lying unutilised on account of closure of factory should be refunded - Rule 5 of Cenvat Credit Rules, 2004. [para 8]”
The appellant also relied upon CCE, Jalandharv. S.K. Sacks P. Ltd. 2010 (261)E.L.T.560 (Tri.-Del.)wherein it has been held as under:
“Refund of unutilised credit - Cash refund - Closure of factory and credit not capable of being utilised if credited to Cenvat credit account - Cenvat credit to be refunded in cash - Rule 5 of Cenvat Credit Rules, 2002. [2009 (239)E.L.T.139 (Tribunal), 2006 (201)E.L.T.559 (Kar.) relied on], [para 5]”
The appellant also relied upon CCE, Tirupativ. Kores (India) Ltd. (sic) - 2009 (247)E.L.T.658 (Tri.-Mum.)wherein it has been held as under :
“Refund - Cenvat/Modvat - Refund of unutilised credit on the ground of closure of factory - Identical refund claim allowed by High Court of Karnataka in case of Slovak India Trading Co. Pvt. Ltd. [2006 (201)E.L.T.559 (Kar.)] against which SLP dismissed by Supreme Court [2008 (223) E.L.T. A170 (S.C.)] - Refund allowed - Rule 5 of Cenvat Credit Rules, 2004.”

Respondent’s contention:-On the other hand, ld. AR reiterated the finding on the ground that on closure of the business of the appellant the unutilised Cenvat credit would lapse and moreover the appellant did not file the requisite documents in support of their refund.

Reasoning of judgment:-They have heard the ld. counsel for the parties and with their assistance, perused the relevant material on record. The relevant rule dealing with refund of Cenvat credit is Rule 5 of Cenvat Credit Rules, 2004 which is reproduced herein :
RULE 5. Refund of CENVAT Credit.- (1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette :

Refund amount	=	(Export turnover of goods + Export turnover of services)	x	Net Cenvat credit
		Total turnover

Where, -
(A)       “Refund amount” means the maximum refund that is admissible;
(B)       “Net CENVAT credit” means total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;
(C)       “Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;
(D)       “Export turnover of services” means the value of the export service calculated in the following manner, namely : -
Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period - advances received for export services for which the provision of service has not been completed during the relevant period;
(E)       “Total turnover” means sum total of the value of
(a)       all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
(b)       export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
(c)        all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.
(2) This rule shall apply to exports made on or after the 1st April, 2012 :
Providedthat the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement :
Providedfurther that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the [Service Tax Rules, 1994] in respect of such tax.
Explanation 1.- For the purposes of this rule, -
(1)       “export service” means a service which is provided as per [rule 6A of the Service Tax Rules, 1994];
(1A)     “export goods” means any goods which are to be taken out of India to a place outside India.].
(2)       “relevant period” means the period for which the claim is filed.
Explanation 2.- For the purposes of this rule, the value of services shall be determined in the same manner as the value for the purposes of sub-rules (3) and (3A) of rule 6 is determined.”
Admittedly, in the present case the appellant has closed its unit and filed ER return claiming refund of unutilised Cenvat credit which he is entitled to as per Rule 5 of the Cenvat Credit Rules, 2004. The rejection of refund claim by the ld. Commissioner is on account of misinterpretation of the rules governing the refund. The ER return submitted by the appellant along with refund application is sufficient to grant refund to the appellant. The judgments cited at the bar by the ld. counsel for the appellant are fully applicable in the facts and circumstances of this case.
In view of the facts and circumstances enumerated, they set aside the impugned order and direct the respondent to grant refund within a period of two months from the receipt of the certified copy of the order.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that exporter assessee is entitled to the refund of credit lying unutilized on closure of factory under Rule 5 of the Cenvat Credit Rules, 2004.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2914

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