Export-linked Cenvat credit refund under Rule 5 allowed where no duty liability existed to absorb the accumulated credit.

Accumulated Cenvat credit arising from export clearances was treated as refundable in cash under Rule 5 of the Cenvat Credit Rules, 2002 where no duty liability existed against which the credit could be set off. The provision, read with the relevant notification, was applied as a beneficial mechanism to prevent loss of credit when utilisation is not possible. Denial of refund on the basis that the credit might have been absorbed elsewhere was found inconsistent with the export-driven accumulation of credit. Cash refund was therefore the appropriate relief for unutilised export-related credit.

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Issues: Whether accumulated Cenvat credit attributable to exports could be refunded in cash under Rule 5 of the Cenvat Credit Rules, 2002 when the credit could not be utilised against duty liability.

Analysis: The appellants established that the credit had accumulated because a substantial portion of clearances was exported and, therefore, no duty liability arose against which the credit could be absorbed. Rule 5, read with the relevant notification, was treated as a beneficial provision intended to prevent loss of credit where adjustment is not possible for any reason. The authorities below were found to have wrongly denied refund by insisting on utilisation possibilities and by ignoring the export-driven nature of the accumulation. The reasoning was supported by the view that where export clearances are duty-free and credit remains unutilised, cash refund is the only effective relief.

Conclusion: The refund claims were allowable and the denial of refund was unsustainable.

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