Refund of unutilised Cenvat credit on factory closure upheld where the credit scheme would otherwise be defeated.

Under the Chewing Tobacco and Unmanufactured Tobacco Packing Machine Rules, 2010, unutilised Cenvat credit remaining on closure of a factory could not be denied as refund merely because the rules did not expressly repeat a refund clause. The Tribunal held that the credit scheme had to be read with its purpose and existing accrual of credit, and that subordinate legislation could not be construed so rigidly as to defeat the benefit already earned. Applying the principle that Cenvat credit is in the nature of duty paid, the refund rejection was set aside.

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Issues: Whether the assessee was entitled to refund of unutilised Cenvat credit lying in balance on closure of the factory under the Chewing Tobacco and Unmanufactured Tobacco Packing Machine Rules, 2010.

Analysis: The rules permitted Cenvat credit on notified inputs and prescribed utilization against duty payable, while Rule 17 provided refund of excess duty on cessation of work after pro rata adjustment. The denial of refund was based on the view that the rules contained no express provision for refund of unutilised credit. The Tribunal held that the credit system under the rules could not be read in a manner that defeats the benefit already accrued, and that subordinate rules cannot be construed so rigidly as to deny refund where the credit remained unutilised on closure. The Tribunal relied on the principle that Cenvat credit is in the nature of duty paid and on prior decisions treating such credit as equivalent to duty for the relevant purpose.

Conclusion: The assessee was entitled to refund of the unutilised Cenvat credit lying at the time of closure of the factory.

Final Conclusion: The rejection of refund was set aside and the appeal was allowed with consequential relief as admissible in law.

Ratio Decidendi: Where the statutory credit scheme applies to notified goods, unutilised credit remaining on closure of the factory cannot be denied merely because the rule does not expressly repeat a refund clause, and subordinate legislation must yield to the scheme and purpose of the parent law.

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