Modvat refund entitlement upheld where no recredit route existed and rejection on an unstated ground was unfair.

Where excess central excise duty was debited through the Modvat account, cash refund was permitted because no lawful mechanism existed at the relevant time to transfer or recredit the amount to another unit after the assessee had closed one unit; the cited principle on impossibility of set-off or recredit supported refund. Rejection of the claim on a ground not stated in the show-cause notice was also unsustainable, since the notice raised only unjust enrichment and did not allege impermissibility of refund through Modvat. The impugned order was therefore set aside and refund granted with consequential relief.

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Issues: (i) Whether the assessee was entitled to cash refund of excess central excise duty debited through the Modvat account when transfer or recredit of the amount to another unit was not available at the relevant time; (ii) Whether rejection of the refund claim on a ground not stated in the show-cause notice was unsustainable.

Issue (i): Whether the assessee was entitled to cash refund of excess central excise duty debited through the Modvat account when transfer or recredit of the amount to another unit was not available at the relevant time?

Analysis: The assessee had closed the Hyderabad unit and had no effective statutory route to recredit the duty in the Mandideep unit when the Commissioner (Appeals) decided the matter. The request for transfer of credit under the repealed rule could not be acted upon, and the later credit rules had not come into force when the appellate order was passed. In these circumstances, the principle applied in the cited precedent governing impossibility of availing set-off or recredit justified grant of cash refund.

Conclusion: The assessee was entitled to cash refund of the excess duty.

Issue (ii): Whether rejection of the refund claim on a ground not stated in the show-cause notice was unsustainable?

Analysis: The notice proposed only the objection of unjust enrichment. It did not allege that cash refund through the Modvat account was impermissible. The appellate authority accepted that the claim was not hit by unjust enrichment but nevertheless rejected it on a different ground that was outside the notice, which offended the requirement of fair hearing.

Conclusion: The rejection on an extraneous ground was unsustainable.

Final Conclusion: The impugned order was set aside and the refund claim was allowed with consequential relief.

Ratio Decidendi: Where no lawful mechanism exists for recredit or transfer of excess duty paid through Modvat at the relevant time, cash refund may be granted; a refund cannot be denied on a ground not set out in the show-cause notice.

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