Refund of unutilised Cenvat credit allowed on factory closure after exemption, with transitional rules held inapplicable.

Unutilised Cenvat credit was held refundable where final products later became exempt and the factory subsequently closed. The credit had been validly taken on inputs used for dutiable clearances, and the assessee had already reversed the portion relatable to stock, work-in-process, and finished goods on the exemption date. The denial of refund on the theory that the credit had lapsed and could not be encashed was not supported on the facts. Rule 5 governed refund where adjustment was not possible, while Rule 6 and the transitional provisions were inapplicable. The credit balance was therefore refundable, and the orders rejecting refund were liable to be set aside.

---

---

Issues: Whether the assessee was entitled to refund of the unutilized Cenvat credit lying in balance when the final products became exempt and the factory later closed.

Analysis: The credit in dispute related to inputs on which duty had already been validly taken and which were used in the manufacture of final products cleared on payment of duty before exemption. The assessee had reversed the credit relatable to inputs lying in stock, work-in-process, and finished goods on the date of exemption. The refusal of refund by the lower authorities proceeded on the premise that the credit had to lapse and could not be encashed. The relevant Cenvat Credit Rules did not support that premise on the facts of the case. Rule 5 governed refund of credit where adjustment was not possible, while Rule 6 and the transitional provisions did not apply to the assessee's situation. The issue was covered by the settled law that refund of unutilized credit is admissible on closure of the factory and exit from the modvat/cenvat regime.

Conclusion: The assessee was entitled to refund of the credit balance, and the orders denying refund were liable to be set aside.

---