2025 (4) TMI 315 - AT - Service Tax

Appellant entitled to refund of unutilized CENVAT credit following business closure and service tax registration surrender

M/s. R.S. Developers & Associates Versus The Commissioner of GST, CX & Customs, Bhubaneswar-I

CESTAT Kolkata allowed the appeal, holding that the appellant was entitled to refund of unutilized CENVAT credit of Rs. 5,58,015/- following business ... Entitlement to refund of unutilized CENVAT credit lying in the CENVAT account at the time of surrender of service tax registration following closure of business - Interest on refund under Section 11BB of the Central Excise Act, 1944 - HELD THAT:- The issue is settled by the decision of the Hon'ble Apex Court in the case of Union of India vs. Slovak India Trading Co Pvt. Ltd. [2007 (1) TMI 556 - SC ORDER] which affirmed the decision of Karnataka High Court [2006 (7) TMI 9 - KARNATAKA HIGH COURT]. In this decision, the Hon'ble Karnataka HC has held 'The Tribunal has noticed that various case laws in which similar claims were allowed. The Tribunal, in our view, is fully justified in ordering refund particularly in the light of the closure of the factory and in the light of the assessee coming out of the Modvat Scheme. In these circumstances, we answer all the three questions as framed in para 17 against the Revenue and in favour of the assessee.' When Rule 5 of CENVAT Credit Rules, 2004 is read in conjunction with Section 11B, it provides a comprehensive framework for refund of CENVAT credit in cases of closure of business. Rule 5 specifically deals with refund of CENVAT credit, and while it primarily addresses export scenarios, it does not expressly prohibit refund in other circumstances. The adaptable provisions of the Act through Section 83 of the Finance Act enable refund to be routed through Section 11B of the Central Excise Act read with Rule 5 of CENVAT Credit Rules. This interpretation is consistent with the principle that the CENVAT credit is a vested right of the assessee which cannot be extinguished merely because the business has closed down - the appellant is eligible for the refund of unutilized Cenvat credit. Interest on refund claim - HELD THAT:- The Appellant had filed the refund application within the stipulated time and has been wrongfully denied the refund. Therefore, the Appellant is entitled to interest from the date of expiry of three months from the date of the refund application until the date of actual refund. Conclusion - i) The appellant is eligible for the refund of unutilized Cenvat credit of Rs. 5,58,015/-. ii) The appellant is eligible for interest as per Section 11BB of Central Excise Act from three months after the date of application till the date of grant of refund. Appeal disposed off. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment is whether the appellant is entitled to a refund of unutilized CENVAT credit lying in the CENVAT account at the time of surrendering service tax registration following the closure of business. Additionally, the issue of whether the appellant is entitled to interest on the refund amount under Section 11BB of the Central Excise Act, 1944, was also considered.ISSUE-WISE DETAILED ANALYSISRefund of Unutilized CENVAT CreditRelevant legal framework and precedents: The appellant relied on the decision of the Hon'ble Karnataka High Court in Union of India vs. Slovak India Trading Co Pvt. Ltd., which allowed the refund of unutilized CENVAT credit when an assessee exits the CENVAT scheme or closes the business. The Tribunal also considered similar cases such as M/S. International Engineering Agencies V. Commissioner and Lalit Kumar Arya v. Commissioner, which supported the appellant's claim.Court's interpretation and reasoning: The Tribunal observed that Rule 5 of the CENVAT Credit Rules, 2004, while primarily addressing export scenarios, does not expressly prohibit refunds in other circumstances. The Tribunal noted that the CENVAT credit is a vested right of the assessee and should not be extinguished due to business closure.Key evidence and findings: It was undisputed that the appellant was eligible for the unutilized credit of the invoice raised by the contractor. The appellant had surrendered their service tax registration and was no longer rendering services.Application of law to facts: The Tribunal applied the legal principles established in previous judgments to the appellant's case, concluding that the appellant is entitled to a refund of the unutilized CENVAT credit.Treatment of competing arguments: The respondent argued that there is no provision in the CENVAT Credit rules for refunding unutilized credit. However, the Tribunal rejected this argument, citing precedents that allow such refunds.Conclusions: The Tribunal concluded that the appellant is eligible for the refund of unutilized CENVAT credit.Interest on Refund AmountRelevant legal framework and precedents: The appellant claimed interest under Section 11BB of the Central Excise Act, 1944, which mandates interest if a refund is not processed within three months. The Tribunal referred to cases like Z Konark v. Commissioner and Parle Agro Pvt. Ltd. v. Commissioner, which supported the claim for interest.Court's interpretation and reasoning: The Tribunal found that the appellant filed the refund application within the stipulated time and was wrongfully denied the refund. Therefore, the appellant is entitled to interest from three months after the refund application until the actual refund date.Key evidence and findings: The appellant's timely filing of the refund application and the wrongful denial of the refund were key factors.Application of law to facts: The Tribunal applied Section 11BB to determine the appellant's entitlement to interest.Treatment of competing arguments: The respondent argued against the provision for interest on such refunds, but the Tribunal dismissed this argument based on established precedents.Conclusions: The Tribunal concluded that the appellant is entitled to interest on the refund amount as per Section 11BB.SIGNIFICANT HOLDINGSThe Tribunal held that the appellant is eligible for the refund of unutilized CENVAT credit, citing the principle that CENVAT credit is a vested right and should not be extinguished due to business closure. The Tribunal also determined that the appellant is entitled to interest on the refund amount under Section 11BB of the Central Excise Act, 1944, from three months after the refund application date until the actual refund date.Final Determinations(i) The appellant is eligible for the refund of unutilized CENVAT credit of Rs. 5,58,015/-.(ii) The appellant is eligible for interest as per Section 11BB of the Central Excise Act from three months after the date of application until the date of grant of refund.