2018 (8) TMI 1169 - HC - Central Excise

Court grants refund of accumulated Cenvat credit upon factory closure, emphasizing adherence to precedents.

The Court allowed the appeal in favor of the assessee, ruling that the appellant is entitled to a refund of the accumulated Cenvat credit due to the ... Interpretation of Rule 5 of the Cenvat Credit Rules - availability of refund where adjustment is not possible - Refund of CENVAT Credit on closure of manufacturing unit - Indefeasibility of validly taken CENVAT credit - Binding effect of earlier tribunal and High Court decisions and estoppel against Revenue - Judicial discipline in following precedentInterpretation of Rule 5 of the Cenvat Credit Rules - availability of refund where adjustment is not possible - Indefeasibility of validly taken CENVAT credit - Whether refund of accumulated CENVAT credit can be allowed under Rule 5 where adjustment is not possible - HELD THAT: - The Court held that Rule 5 does not expressly prohibit refund and contemplates refund where adjustment is not possible. Reliance was placed on Collector of Central Excise, Pune which recognises that credit validly taken accrues to the manufacturer and is available without temporal limitation and that such credit is 'as good as paid' (Eicher Motors Ltd. cited in that decision). The Division Bench judgment of the Karnataka High Court in Union of India v. Slovak India Trading Co. Pvt. Ltd. and subsequent consistent tribunal and High Court decisions were treated as laying down the principle that a manufacturer who cannot adjust CENVAT credit (including on going out of the MODVAT/CENVAT scheme or on closure) is entitled to claim refund. Applying these authorities, the Court concluded Rule 5 permits refund where adjustment is not possible and the credit, once validly taken, is indefeasible. [Paras 10, 11]Refund under Rule 5 can be allowed where adjustment is not possible and validly taken CENVAT credit is indefeasible.Refund of CENVAT Credit on closure of manufacturing unit - Binding effect of earlier tribunal and High Court decisions and estoppel against Revenue - Judicial discipline in following precedent - Whether accumulated CENVAT credit is refundable on closure of the factory - HELD THAT: - The Court found that where a manufacturing unit is closed and the assessee cannot utilize the credit, established precedent permits cash refund of the accumulated CENVAT credit. The Court observed that several High Courts and Tribunals have allowed refund in such circumstances (including Union of India v. Slovak India Trading Co. Pvt. Ltd. ), and noted that some of those judgments were the subject of SLPs which were dismissed. Having regard to consistent judicial treatment and the principle that the department, having accepted similar tribunal views in other matters, cannot take a contrary position (estoppel), the Court emphasised the need for judicial discipline in following binding or consistently applied precedents and accordingly answered the question in favour of the assessee. [Paras 11, 12, 14, 15]Accumulated CENVAT credit lying unutilised on closure of the manufacturing unit is refundable in cash; the appeal is allowed in favour of the assessee.Final Conclusion: The appeal is allowed; the view permitting cash refund of accumulated CENVAT credit where adjustment is not possible (including on closure of the factory) is approved and the assessee's claim is upheld. Issues Involved:1. Whether the Appellate Tribunal was correct in holding that the refund cannot be allowed under Rule 5 of the Cenvat Credit Rules, 2004.2. Whether the Appellate Tribunal was correct in holding that there is no provision for allowing refund of accumulated Cenvat Credit on the closure of the factory.Detailed Analysis:Issue 1: Refund under Rule 5 of the Cenvat Credit Rules, 2004The appellant challenged the Tribunal's decision that denied the refund under Rule 5 of the Cenvat Credit Rules, 2004. The appellant's factory, which manufactured medicine (Oodoxin), had a significant Cenvat credit balance due to the higher duty on inputs compared to the final product. Upon closing the factory, the appellant sought a cash refund of the accumulated Cenvat credit, which was rejected by the lower authorities.The appellant relied on the precedent set by the Karnataka High Court in the case of Union of India vs. Slovak India Trading Co. Pvt. Ltd., which ruled that Rule 5 does not expressly prohibit the refund of Cenvat credit in the case of factory closure. The Supreme Court dismissed the SLP against this decision, thereby affirming the High Court's ruling. Other High Courts and Tribunals have followed this precedent, supporting the appellant's claim for a refund. The principle established is that the credit is indefeasible and should be refunded if it cannot be utilized due to factory closure.Issue 2: Provision for Refund on Factory ClosureThe Tribunal's stance that there is no provision for refunding accumulated Cenvat credit upon factory closure was contested. The appellant cited multiple cases where similar refunds were granted, including decisions by the Bombay High Court and the Delhi High Court, which supported the refund of Cenvat credit in cases of factory closure. These judgments emphasized that the credit is a right accrued to the manufacturer and should be refunded if it cannot be utilized due to the closure of the manufacturing unit.Court's Observations and Decision:The Court noted the consistent judicial opinion across various High Courts and the Supreme Court affirming the right to a refund of Cenvat credit in cases of factory closure. The Court highlighted the importance of maintaining judicial discipline and adhering to established precedents. It was observed that the Tribunal is bound by the High Court judgments and should not distinguish them without substantial grounds.The Court concluded that the appellant was entitled to a refund of the accumulated Cenvat credit, aligning with the judicial precedents and the principles of estoppel, which prevent the department from taking a contrary stance after accepting similar decisions in other cases.Conclusion:The appeal was allowed in favor of the assessee. The Court approved the view of the Karnataka High Court, as confirmed by the Supreme Court, and ruled that the appellant is entitled to a refund of the accumulated Cenvat credit due to the closure of the factory. The Tribunal's decision was overturned, and the appellant's claim for a refund was upheld.