Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/006

20 August 2009

CASE STUDY

INTRODUCTION

The assessee can be granted refund either by way of Cenvat credit or in cash. It is the general practice to grant refund by way of Cenvat credit. However, in cases where Cenvat credit refund is granted to an assessee who is not able to utilise the Cenvat credit, the grant of refund by way of Cenvat credit would be of no use and loss will be incurred by him. The case study undertaken by us hereunder deals with the said issue.

M/s DCM Fabrics v/s CCE, Jaipur-II

[2009 (091) RLT 0463 (CESTAT-Del.)]

BRIEF FACTS OF THE CASE

- The appellants were engaged in the processing of cotton fabrics falling under Chapter 52 of the first schedule to the Central Excise Tariff Act, 1985.

- Notification No. 25/2003 dated 25.03.2003 provided the benefit of one-time deemed credit on gray fabrics lying in stock or in process or contained in finished goods lying in their stock as on 31.3.2003 (subsequently changed to 01.04.2003). The last date for filing declaration for availing one time credit was extended to 15.06.03.

- The assessee filed the declaration on 16.6.2003 as there was a holiday (Sunday) on 15.6.2003. Therefore, the next working day was 16.6.2003.

- The show cause notice was issued to the appellant and he pleaded that since there was holiday on 15.06.2003 and as per General Clauses Act when a particular act is to be done in a time frame and last day happens to be holiday then the last date automatically shifts to next working day. As such, the declaration should be accepted and one time credit should be allowed. However, the Deputy Commissioner disallowed the credit and ordered its recovery together with interest and also imposed penalty on the appellants.

- In further appeal, the order-in-original was set aside by the Commissioner (Appeals). The Commissioner (Appeals) remanded the matter to the Adjudicating Authority.

- Meanwhile the textile industry was exempted from the levy of Central Excise duty and the assessee has surrendered the registration.

- The Adjudicating Authority sanctioned the claim. But the amount which was paid from Cenvat credit was allowed as Cenvat credit and the amount deposited in bank was refunded in cash to the appellant.

- Since the appellant had surrendered their registration certificate and had come out of the Cenvat credit scheme. Therefore, the refund granted by way of Cenvat credit could not be utilised by the appellants. Accordingly, they the have filed appeal against the refund granted by way of Cenvat credit. The appeal was rejected by the Commissioner (Appeal) and the appellant went to tribunal.

QUESTION FOR CONSIDERATION

The question for consideration before the Tribunal was that whether refund in cash can be sanctioned to the assessee (Appellant) when he had paid duty out of Cenvat credit but now the assessee was not under the Cenvat scheme.

JUDGMENT OF TRIBUNAL

v The Tribunal has relied upon the judgment delivered in the case of Slovak India Trading Co. Pvt. Ltd. Vs. CCE, Bangalore [2006 (205) ELT 0956 (Tri.-Bang.)] in which it was held that when assessee goes out of modvat scheme or when company is closed, refund claim can be made in cash.

v The order of the Tribunal was upheld by the High Court of Karnataka [2006 (201) ELT 0559 (Kar.)]. The High Court held that Rule 5 of the Cenvat Credit Rules, 2002 does not expressly prohibit refund of unutilized credit when there was no manufacture due to closure of factory.

v The Tribunal held that in this case, the appellants had closed their factory and surrendered their excise license and therefore the ratio of Slovak India Trading Co. Pvt. Ltd. decision was squarely applicable to them.

v The Tribunal followed the ratio of laid down in the said case and held that cash refund is admissible to the appellants. The order granting refund by way of Cenvat credit was set aside.

DECISION OF TRIBUNAL

The Tribunal held that Appellants were entitled to refund in cash and allowed the appeal.

COMMENTS & CONCLUSION

The Tribunal rightly held that cash refund must be granted when the assessee is unable to utilise the Cenvat credit. If the credit was available at the time when he has reversed it, he must have used the same. But when the product is exempted or the factory is closed then the manufacturer will not be able to utilize the credit. As such, the cash refund of the same is justified.

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PJ/CASE STUDY/2009-10/006
20 August 2009

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