Refund of Cenvat Credit: VCES payment does not bar refund of legitimately admissible input credit to exporters.

Refund of unutilised Cenvat credit where underlying service tax was paid under the Voluntary Compliance Encouragement Scheme (VCES) is permissible if the credit is otherwise admissible under the Cenvat Credit Rules; the non refund language of the VCES provision applies to the tax paid under the scheme and does not automatically bar refund of legitimately accrued input credit to exporters. The analysis relies on the statutory scheme governing refund to exporters, evidencing requirements for admissibility of credit, and prior clarifications that admissibility is governed by the Cenvat regime. Outcome: refund of the disputed credit with interest is warranted.

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Issues: Whether refund of unutilised Cenvat credit availed on the basis of service tax paid under the Voluntary Compliance Encouragement Scheme (VCES) is admissible to an exporter under the Cenvat Credit Rules, 2004.

Analysis: The Tribunal examined whether the bar on refund in Section 109 of the Finance Act, 1994 (as enacted for VCES) applies to denial of refund of Cenvat credit that accrued after payment of tax under VCES. The Tribunal considered the statutory scheme of Cenvat Credit Rules, 2004, in particular Rule 5 (refund to exporters) and Rule 9(1)(bb) and 9(1)(e) (documents evidencing payment and admissibility of credit), and the clarifications issued by the Board in Circulars/FAQs (Circular No. 169/4/2013-ST dated 13.05.2013 and Circular No. 170/5/2013-ST dated 08.08.2013) which state that admissibility of Cenvat credit is to be determined under the Cenvat Credit Rules. The Tribunal relied on its prior decisions, including an earlier order in the same appellant's matter and the decision in Oxygen Bio Research P Ltd, which held that service tax paid under VCES does not ipso facto negate the availability of Cenvat credit or the refund of unutilised credit where the credit is otherwise legally admissible under the Cenvat Credit Rules. Applying these authorities and the Board's clarification, the Tribunal concluded that the non-refund language of Section 109 relates to the tax paid under the VCES scheme itself and does not operate to deny refund of legitimately accrued Cenvat credit to exporters under Rule 5 of the Cenvat Credit Rules, 2004.

Conclusion: The denial of refund of Cenvat credit of Rs. 10,87,454/- solely because the underlying service tax was paid under VCES is not sustainable; the appellant is entitled to refund of the said Cenvat credit with applicable interest.

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