Appellant wins refund case on Cenvat Credit for factory closure, Tribunal grants refund with interest

The appellant's refund application for unutilized Cenvat Credit upon the closure of their factory was initially rejected by the Adjudicating Authority. However, following appeals, the Karnataka High Court and later the Supreme Court ruled in favor of the appellant. The courts emphasized that Rule 5 of the Cenvat Credit Rules did not apply in cases of factory closure, allowing the appellant's refund claim. The Tribunal ultimately granted the refund with interest, in line with the higher courts' decisions, establishing the entitlement to refund upon closure of business.

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Issues:
- Rejection of refund application for unutilized Cenvat Credit upon closure of factory.

Analysis:
The appellant appealed against the rejection of their refund application for unutilized Cenvat Credit upon the closure of their factory on 28.6.2017. The appellant, engaged in manufacturing surgical tapes and bandages, had filed a refund claim amounting to Rs. 15,34,137 under Notification No. 27/2012-CE(NT) dated 18.06.2012. The Adjudicating Authority rejected the refund claim citing the absence of provisions under Central Excise Act/Rules for cash refund of unutilized Cenvat Credit on unit closure and lack of reliable supporting documents. The appellant contended that they had paid duties on inputs/raw materials and clearance of finished goods, leading to the accumulation of Cenvat Credit over seven years, which was not in dispute. The appellant emphasized the interpretation of law by various courts, citing the case of Union of India vs. Slovak India Trading Company Pvt Ltd., where the Hon'ble High Court of Karnataka allowed refund of unutilized Cenvat Credit on unit closure.

The Commissioner (Appeals) upheld the rejection, stating that Rule 5 of CCR, 2004 only allowed for the non-utilization of credit in the event of export of goods, not for domestic clearances. The Commissioner relied on the Supreme Court ruling in M/s. Purvi Fabrics and Texturise (P) Ltd. vs CCE, Jaipur II. The appellant then approached the Tribunal, referencing the Karnataka High Court's decision in the Slovak India Trading case, where the Tribunal allowed the refund claim on grounds of closure of the factory and going out of the Modvat scheme.

The Hon'ble Karnataka High Court upheld the Tribunal's decision, stating that the refund claim cannot be rejected when the assessee goes out of the Modvat scheme or when the company is closed. The Revenue appealed to the Supreme Court, which also ruled in favor of the assessee, emphasizing that Rule 5 of Cenvat Credit Rules, 2002 did not apply in cases of factory closure. The Supreme Court highlighted that various similar claims were allowed by the Tribunal, justifying the refund in the closure scenario.

Based on the Karnataka High Court and Supreme Court rulings, the Tribunal allowed the appeal, granting the appellant the refund of unutilized Cenvat Credit with interest as per Section 11BB of the Central Excise Act. The Tribunal's decision aligned with the precedent set by the higher courts, emphasizing the entitlement to refund upon closure of business.

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