2026 (1) TMI 389 - AT - Central Excise

Factory closure and unutilized CENVAT credit refund claim u/r 5 after 01.04.2012 amendment rejected

Refund of unutilized CENVAT credit on closure of a manufacturing unit was denied because, after the 01.04.2012 amendment to Rule 5 of the CCR, 2004, ... Admissibility of refund of unutilized credit on account of closure of the manufacturing unit - HELD THAT:- Before 01.04.2012, Rule 5 gives scope for refund of CENVAT credit for the reason that the same cannot be utilized because of exports or for any other reason. It is found that after Rule 5 (ii), it is mentioned that where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification. However, after amendment w.e.f. 01.04.2012, Rule 5(1) provides that a manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette. Thus, it is seen that the Rule w.e.f 01.04.2012 provides that refund of unutilized CENVAT credit only in the cases where the credit could not be utilized on account of exports and not for any other reason. If the Rule 5 does not provide for refund of CENVAT credit on any other account other than export w.e.f. 01.04.2012 the appellants are not eligible for refund of CENVAT credit on closure of the factory - the Tribunal being the creature of Statute, cannot go beyond the four corners of law and interpret the statutory position for a situation which is not provided for in the said Statute. Therefore, the appeal is not maintainable on that count. Another submission of the appellant is that the OIO dated 14.04.2015 and the OIA dated 02.07.2019 have gone beyond the grounds of rejection stated in the SCN dated 22.01.2015 - It is found that the impugned SCN has clearly proposed rejection of refund claim under the provisions of Rule 5 of CCR,2004 read with Section 11B of the CEA,1944 and therefore, there is no merit in the submissions of the appellant. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, for the post-01.04.2012 period, refund of unutilised CENVAT credit can be granted on closure of the factory under Section 11B(2)(c) of the Central Excise Act, 1944 read with Rule 5 of the CENVAT Credit Rules, 2004. (ii) Whether the refund rejection orders impermissibly travelled beyond the show cause notice, in view of the ground ultimately adopted for rejection. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Refund of unutilised CENVAT credit on closure of factory (post-01.04.2012) Legal framework: The Court examined Section 11B(2)(c) of the Central Excise Act, 1944 to the extent it makes refund of 'credit of duty paid' contingent upon being 'in accordance with the rules made, or any notification issued' under the Act. The Court treated Rule 5 of the CENVAT Credit Rules, 2004 as the governing rule for refund of CENVAT credit and compared the pre-01.04.2012 and post-01.04.2012 text of Rule 5, as set out in the judgment. Interpretation and reasoning: The Court held that Section 11B(2)(c) does not, by itself, create an independent substantive entitlement to cash refund of accumulated CENVAT credit merely because the credit was correctly availed and later became incapable of utilisation. Instead, Section 11B(2)(c) requires that such refund must be granted only as permitted by the relevant Rules/Notifications. On examining Rule 5, the Court found that prior to 01.04.2012 the rule contemplated refund where utilisation/adjustment was not possible 'for any reason', but after the amendment w.e.f. 01.04.2012 the refund mechanism is confined to situations of exports (goods exported without payment of duty under bond/LUT or exported output services) through the prescribed formula. Accordingly, for the post-amendment regime, the Court concluded that Rule 5 does not permit refund of unutilised credit on closure of the factory (a non-export reason). The Court therefore rejected reliance on decisions founded on the pre-amendment Rule 5 position, holding them inapplicable to the period in question, and further observed that being a creature of statute it cannot grant a refund for a situation not provided under the statutory scheme. Conclusion: Refund of unutilised CENVAT credit on closure of the factory is not admissible for the post-01.04.2012 period under Section 11B(2)(c) read with Rule 5 of the CENVAT Credit Rules, 2004, where the claim is not based on exports. The appeal failed on this ground. Issue (ii): Whether the orders travelled beyond the show cause notice Legal framework: The Court considered the contents of the show cause notice as referred to in the judgment, and the basis on which the refund was proposed to be rejected. Interpretation and reasoning: The Court found that the show cause notice had clearly proposed rejection of the refund claim under Rule 5 of the CENVAT Credit Rules, 2004 read with Section 11B of the Central Excise Act, 1944. Since the rejection ultimately sustained was also on the non-availability of refund under Rule 5 (post-01.04.2012) in the circumstances, the Court held that the adjudication did not go beyond the notice. Conclusion: The contention that the rejection orders travelled beyond the show cause notice was rejected; the notice itself proposed rejection under Rule 5 read with Section 11B, matching the ground on which the claim was denied.