2020 (6) TMI 356 - AT - Central Excise

Manufacturer's refund claim for MODVAT credit denied due to unit closure: Tribunal decision.

The case involved a dispute over a refund claim for MODVAT credit by a manufacturer of PVC Pipes and PVC Compound. The appellant sought a cash refund due ... Refund of the MODVAT/CENVAT in cash - factory is closed - Rule 5 of Cenvat Credit Rules, 2004 - HELD THAT:- This issue was examined by the Larger Bench of the Hon’ble High Court of Bombay in 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 [2019 (6) TMI 820 - BOMBAY HIGH COURT] which also examined whether unutilised cenvat credit can be refunded on account of the closure of manufacture activities of the factory. The Hon’ble Larger Bench has found that the law has not been laid down by the Hon’ble Apex Court and the SLP was merely dismissed on account of the concession made by the ASG. Further, the Larger Bench of Hon’ble High Court of Bombay has held that no refund can be sanctioned under Section 11B if the assessee is unable to utilise cenvat credit on account of closure of the manufacturing activities. The ratio of the judgment of the Larger Bench of the Hon’ble High Court of Bombay is binding and prevails and accordingly no refund of MODVAT/Cenvat credit can be sanctioned to the respondent - Appeal allowed - decided in favor of Revenue. Issues:- Refund claim for MODVAT credit- Interpretation of Rule 5 of Cenvat Credit Rules, 2004- Precedential value of judgments from High Courts and Supreme CourtRefund claim for MODVAT credit:The case involved a manufacturer of PVC Pipes and PVC Compound who filed a refund claim for MODVAT credit of Rs. 1,81,23,725 after the Hon'ble Settlement Commission allowed them to take credit for unaccounted duty paid raw materials. The appellant's unit was closed, leading them to seek a cash refund as they were unable to utilize the MODVAT credit. The original authority rejected the refund claim, citing that the Settlement Commission only ordered MODVAT credit and not cash refund. The First Appellate Authority later reversed this decision, allowing the cash refund. The Revenue appealed this decision, leading to the present case.Interpretation of Rule 5 of Cenvat Credit Rules, 2004:The key issue revolved around Rule 5 of the Cenvat Credit Rules, 2004, which governs the refund of Cenvat credit. The rule specifies conditions under which a refund can be granted, primarily related to the use of inputs in export or output services. The rule does not explicitly provide for a refund if the credit cannot be utilized due to the closure of a factory. The appellant relied on judgments from the Hon'ble High Court of Karnataka and the Hon'ble Supreme Court, which allowed refunds in similar circumstances. However, the Larger Bench of the Hon'ble High Court of Bombay held that no refund can be sanctioned under Section 11B if the assessee is unable to utilize Cenvat credit due to the closure of manufacturing activities.Precedential value of judgments from High Courts and Supreme Court:The case delved into the significance of judgments from different courts and their binding nature. The respondent cited judgments from the Hon'ble High Court of Karnataka and the Hon'ble Supreme Court to support their claim for a cash refund. However, the Revenue argued that the dismissal of the Special Leave Petition by the Hon'ble Supreme Court did not establish a binding precedent under Article 141 of the Constitution. The Larger Bench of the Hon'ble High Court of Bombay clarified that the law had not been definitively laid down by the Hon'ble Apex Court in the case in question. Ultimately, the Tribunal held that the judgments from the Larger Bench of the Hon'ble High Court of Bombay and the constitutional bench of the Hon'ble Supreme Court established the prevailing legal position, leading to the allowance of the Revenue's appeal and the setting aside of the impugned order.This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Hyderabad highlighted the nuanced legal issues surrounding the refund claim for MODVAT credit, the interpretation of relevant rules, and the weight of precedent from different courts in determining the outcome of the case.