Unutilised CENVAT credit refund is permissible on factory closure when no transfer or adjustment of credit is possible.

When a manufacturing unit closes and the assessee surrenders registration, unutilised CENVAT credit cannot be denied merely because no transfer of credit was made to the purchaser under Rule 10 of the CENVAT Credit Rules, 2004. The unit had ceased operations, become non-functional, and left no practical scope to utilise the credit. The settled view noted that, where adjustment or transfer is not possible and there is no legal prohibition, refund in cash of the unutilised credit is permissible. On that basis, rejection of the refund claim was unjustified and the unutilised CENVAT credit balance was refundable.

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Issues: Whether the assessee was entitled to refund of the unutilized CENVAT credit balance on closure of its factory and surrender of registration, notwithstanding the department's contention that the credit ought to have been transferred to the purchaser under Rule 10 of the CENVAT Credit Rules, 2004.

Analysis: The assessee had ceased manufacturing activities, surrendered its registration and became non-functional. The business change arrangement contemplated transfer of assets but did not provide for transfer of CENVAT credit. The Court found that the situation was governed by the principle that, where the unit has closed and the assessee has come out of the credit scheme, the unutilized credit cannot be denied merely because no transfer of credit was effected. Relying on the settled view that Rule 5 does not prohibit refund in cash in such circumstances and that similar claims had been allowed when no adjustment of credit was possible, the rejection of refund was held to be unjustified.

Conclusion: The assessee was entitled to refund of the unutilized CENVAT credit balance, and the denial of refund was unsustainable.

Ratio Decidendi: Where a manufacturing unit has closed and the assessee cannot utilize or transfer the CENVAT credit, refund of the unutilized balance cannot be refused in the absence of a legal prohibition.

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