Refund of unutilised Cenvat credit follows when exempt exports do not require duty payment and the unit has closed down.

A 100% export-oriented unit that manufactured exempt goods was not required to pay excise duty under Section 5A(1A) merely to seek export rebate under Rule 18, so the rejection of rebate could not justify retaining unusable Cenvat credit. Where the accumulated credit remained unutilised, had not been re-credited, and the factory had closed, the credit served no practical purpose and refund was warranted. The reasoning on refund of Cenvat credit on closure of the unit was treated as applicable, and the discussion also noted that continued operations under GST would have attracted transitional credit under Section 142 of the CGST Act, 2017. The unutilised amount was therefore refundable.

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Issues: Whether a 100% export-oriented unit which had paid excise duty despite exemption, accumulated Cenvat credit, and whose rebate claim under Rule 18 was rejected, was entitled to refund of the unutilised amount.

Analysis: The goods manufactured by the unit were exempt under Notification No. 24/2003-C.E. and the proviso concerning clearance to any other place in India did not apply. In that situation the unit was not required to pay excise duty under Section 5A(1A) of the Central Excise Act, 1944, and therefore the duty payment made for export rebate could not be sustained as a basis for denying relief. Since the accumulated credit had remained unutilised, had not been re-credited, and the factory had closed down, the credit could no longer serve any practical purpose. The reasoning adopted in the decision dealing with refund of Cenvat credit on closure of the unit was treated as applicable, and the Court also noted that if the unit had continued under the GST regime it would have been entitled to transitional credit under Section 142 of the Central Goods and Services Tax Act, 2017.

Conclusion: The petitioner was entitled to refund of the amount that remained unutilised because no duty was payable in the first place and the rejected rebate had left the credit unusable.

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