Whether the company can claim refund of accumulated Cenvat credit on winding up?

PJ/CASE LAW/2015-16/2852

Case:-C.C., C. E. & S.T., HYDERABAD-IV VERSUSAPEX DRUGS & INTERMEDIATES LTD.

Citation:- 2015 (322) E.L.T. 834 (A.P.)

Brief Facts:-This appeal by the Revenue under Section 35G of the Customs Act, 1962 is directed against a common order dated 13-8-2010 of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), South Zonal Bench, Bangalore rejecting the Revenue’s appeal against the Order-in-Appeal dated 30-10-2008 passed by the Commissioner (Appeals), Hyderabad. This appeal pertains to the order of the CESTAT in Appeal No. 1163 of 2010 [2014 (314) E.L.T. 729 (Tri.-Bang.)].The respondent is a manufacturer of bulk drugs and had operated under the Cenvat scheme, used to export finished goods and claimed refund of Cenvat credit accumulated on account of such exports in terms of Rule 5 of the Cenvat Credit Rules, 2004 (for short ‘the Rules’). The assessee wound up their operations and surrendered its registration certificate on 7-8-2007. Refund claims filed in respect of four quarters under Rule 5 of the Rules were allowed by the Original Authority. Where against the Revenue filed appeals before the Commissioner (Appeals). The said appeals were dismissed. There against appeals were filed before the CESTAT. While dismissing the appeals, the Tribunal relied upon the judgment of the Karnataka High Court in Union of India v. Slovak India Trading Co. Pvt. Ltd. - 2006 (201) E.L.T. 559, wherein in a substantially similar fact situation i.e., where the company wound up its operations and claimed refund of the accumulated Cenvat credit, the Karnataka High Court, interpreting Rule 5 of the Rules held that Cenvat credit is permissible. Against this judgment of the Karnataka High Court, the matter was carried in appeal to the Supreme Court. In Union of India v. Slovak India Trading Co. Pvt. Ltd. - 2008 (223) E.L.T. A170 (S.C.), the Supreme Court dismissed the SLP after recording that the learned Additional Solicitor General for India had fairly conceded that the several decisions of the Tribunal relied upon for granting relief to the assessee in terms of refund of Cenvat credit were not appealed against the Union and thereby implying that the Union could not fairly pursue litigation against the Slovak India Trading Co. Pvt. Ltd. either.

Appellants Contention-The learned Standing Counsel for Central Excise, Sri A. Rajashekar Reddy places reliance on the decision of a Larger Bench of the Tribunal in Gauri Plasticulture (P) Ltd. v. Commissioner of Central Excise, Indore -2006 (202) E.L.T. 199 (Tri.-LB). It requires to be noticed para 8 of this order while observing that “wherever the assessee was unable to utilize the credit on account of objection raised by the Department or actions taken by them by way of initiation of proceedings or paid duty out of Modvat account at the Department’s insistence, and for that reason he had to pay duty in cash or out of the PLA, they would be entitled to refund of that credit in cash, on the dispute being ultimately settled in favour of the assessee”. The Larger Bench of the Tribunal clearly observed “if an assessee is not able to use the credit on account of any reasons, whatsoever (which may be closure of his factory or final products being exempted etc.) the refund becomes admissible in cash or by way of credit entry in PLA to the extent duty paid in cash or out of PLA during the relevant period”.
Rule 5 of the Cenvat Credit Rules, 2002 reads :
“Rule 5. Refund of Cenvat Credit.- When any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the Cenvat credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification.”

Respondents Contention:- None appeared for the respondents.

Reasoning Of Judgement:-On a true and fair construction of the provision as well, the Rule entitles the manufacturer to refund of the Cenvat credit where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification. No notification of the Central Government setting out safeguards, conditions and limitations for the refund, in case of closure of the unit has been placed on record either before the Appellate Authority, the further Appellate Authority, the Tribunal or even before High Court. In the aforesaid circumstances, no substantial question of law arises for consideration in this appeal and it is accordingly dismissed at the stage of admission. No costs.

Decision:- Appeal dismissed.

Comment:-The analogy in the case is that if an assessee is not able to use the credit on account of any reasons, which may be closure of his factory or final products being exempted etc. then according to Rule 5 of Cenvat Credit Rules 2004, the refund becomes admissible in cash or by way of credit entry in PLA to the assessee.

Prepared By:-Neelam Jain

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PJ/CASE LAW/2015-16/2852

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