2019 (6) TMI 820 - HC - Central Excise

Refund of unutilized Cenvat Credit on inputs denied under section 11B(2) Central Excise Act 1944

M/s. Gauri Plasticulture P. Ltd., Bombay Dyeing & Manufacturing Co. Ltd., M/s. Simplex Mills Co. Ltd. Versus The Commissioner of Central Excise, Indore, The Commissioner of Central Excise, Mumbai IV, The Union of India through the Commissioner of Central Excise Mumbai I

The Bombay HC ruled against the assessee regarding cash refund of unutilized Cenvat Credit on inputs under section 11B(2) of the Central Excise Act, 1944. ... Entitlement to cash refund when Cenvat Credit is un-utilised on inputs - clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 - Section 11B of the said Act of 1944 - time limitation - vires of declaration of law under Article 141 of the Constitution of India - HELD THAT:- Section 11B(1) clearly says that a person claiming refund has to make an application for refund of such duty before the expiry of the period prescribed and in such form and manner. The application has to be accompanied by such documentary or other evidence as the applicant may furnish to establish that the amount of duty of excise, in relation to which such refund is claimed, was collected from or paid by him and incidence of such duty had not been passed by him to any other person. The later provision enabling the claiming of refund is now worded differently. We have reproduced it and now it is only when the proviso is attracted that the amount of refund can be paid over to the applicant or else it has to be credited to the fund. Even earlier, the amount used to be credited to the fund, but the proviso says that instead of being credited to the fund, it can be paid to the applicant if such amount in this case is relatable to refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made. The crucial words are that “the refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made or any notification issued under this Act”. If the excisable goods are not used as inputs in accordance with the rules made, to our mind, there is no question of any refund. A perusal of this rule indicates that where any input or input service is used in the final product, which is cleared for export etc. or used in the intermediate product cleared for export or used for providing output service which is exported, then, the Cenvat Credit in respect of the input or input service so used shall be allowed to be utilised by the manufacturer or provider of output service towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty or service tax on output service. Whether for any reason, such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitation as may be specified by the Central Government by a notification. The transitional provision that any amount of credit earned by a manufacturer under the Cenvat Credit Rules, 2002, as they existed prior to the 10th September, 2004 or by a provider of output service under the Service Tax Credit Rules, 2002 as they existed prior to 10th September, 2004 and remaining un-utilised on that day shall be allowed as Cenvat Credit to such manufacturer or provider of output service under these rules, and be allowed to be utilised in accordance with these rules. This is how the transitional provision enables carrying forward of the un-utilised Cenvat Credit. That is a distinct contingency altogether. That transitional provision does not enable us to hold that the amount of un-utilised Cenvat Credit can be refunded in cash. We answer the questions of law framed against the assessee and in favour of the Revenue. Needless to state that the order of the Hon’ble Supreme Court in the case of Slovak India [2007 (1) TMI 556 - SC ORDER] cannot be read as a declaration of law under Article 141 of the Constitution of India. Issues Involved:1. Whether cash refund is permissible in terms of clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs.2. Whether by exercising power under Section 11B of the said Act of 1944, a refund of un-utilised amount of Cenvat Credit on account of the closure of manufacturing activities can be granted.3. Whether the observations in the order dated 25th January 2007 by the Apex Court in Union of India vs Slovak India Trading Company Pvt Ltd. can be read as a declaration of law under Article 141 of the Constitution of India.Detailed Analysis:Issue 1: Permissibility of Cash Refund under Clause (c) to Proviso to Section 11B(2)The court examined Section 11B of the Central Excise Act, 1944, which deals with the refund of duty and interest. It noted that the proviso to sub-section (2) allows for a refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made under the Act. The court emphasized that the refund of credit is only permissible if the inputs are used in the manufacture of final products cleared for export or used in providing output services that are exported. The court concluded that there is no provision in the Act that permits a cash refund of un-utilised Cenvat Credit merely because the credit could not be utilized due to the closure of the factory or cessation of manufacturing activities. The court rejected the argument that Rule 5 of the Cenvat Credit Rules, 2004, allows for such a refund, stating that the rule only permits a refund when the final products or output services are exported.Issue 2: Refund of Un-utilised Cenvat Credit on Closure of Manufacturing ActivitiesThe court examined the case law and the statutory provisions to determine whether a refund of un-utilised Cenvat Credit is permissible upon the closure of manufacturing activities. It referred to the judgments in the cases of Slovak India Trading Private Limited and Jain Vanguard Polybutylene Ltd., where refunds were allowed by the appellate authorities and the CESTAT. However, the court noted that these decisions were based on the absence of an express prohibition in Rule 5 of the Cenvat Credit Rules, 2004, and the concession made by the Additional Solicitor General in the Supreme Court. The court clarified that these judgments did not establish a legal principle that un-utilised Cenvat Credit must be refunded in cash upon the closure of the factory. The court held that the scheme of the Cenvat Credit Rules does not support such a refund, as the rules require the inputs to be used in the manufacture of final products or for providing output services.Issue 3: Declaration of Law under Article 141 by the Apex CourtThe court considered whether the observations made by the Supreme Court in the order dated 25th January 2007 in Union of India vs Slovak India Trading Company Pvt Ltd. constitute a declaration of law under Article 141 of the Constitution of India. The court noted that the Supreme Court dismissed the Special Leave Petition filed by the Revenue based on the concession made by the Additional Solicitor General that similar claims had not been appealed against. The court emphasized that the Supreme Court did not make any legal pronouncement on the issue of refund of un-utilised Cenvat Credit in that order. Therefore, the court concluded that the order cannot be read as a declaration of law under Article 141.Conclusion:The court answered the questions of law in the negative, holding that:1. Cash refund is not permissible under clause (c) to the proviso to section 11B(2) where an assessee is unable to utilize credit on inputs.2. Refund of un-utilised Cenvat Credit on account of the closure of manufacturing activities is not permissible under Section 11B.3. The order of the Supreme Court in Union of India vs Slovak India Trading Company Pvt Ltd. does not constitute a declaration of law under Article 141.The reference was disposed of, and the appeals were directed to be listed before the Division Bench for disposal in accordance with the judgment.