Cash refund of duty paid under protest allowed where the exemption regime made Cenvat credit inapplicable

Where an assessee operating under Notification No. 50/2003 is no longer within the Cenvat credit framework, refund of duty paid under protest cannot be confined to a notional credit entry. The Tribunal noted that the exemption regime and the Board circular rendered Cenvat credit inapplicable to such units, so credit in the account would be incapable of use. On that basis, the refund was held payable in cash rather than through an inoperative credit mechanism.

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Issues: Whether refund of duty paid under protest was required to be granted in cash where the assessee had opted for exemption under Notification No. 50/2003 and the Cenvat credit mechanism had become inapplicable to its unit.

Analysis: The refund claim arose after duty had been paid under protest on packing material of modvatable inputs and the departmental stand on duty liability had subsequently failed. The assessee was operating under the exemption regime of Notification No. 50/2003, and the Board circular relied upon treated such units as no longer required to be registered, with the practical consequence that the Cenvat credit system ceased to operate for them. In that situation, credit allowed only in the Cenvat account would be merely notional and incapable of utilization. The Tribunal held that the refund could not be forced into a credit account when the credit framework itself had become inoperative for the assessee.

Conclusion: The assessee was entitled to receive the refund in cash, and the Revenue's challenge failed.

Ratio Decidendi: Where the statutory credit mechanism is rendered inapplicable to the assessee by the applicable exemption regime, refund of duty cannot be restricted to credit entry and may be sanctioned in cash.

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