TaxTMI 
TaxTMI 
2011 (5) TMI 111
X X X X Extracts X X X X
X X X X Extracts X X X X
....itled for refund of the credit amount under the provisions of law in force." [Ref: Para 30 of the referral order]. 1.1 The referring Bench was of the opinion that law does not permit cash refund of unutilized Modvat credit during the material period for which they were unable to subscribe to the view expressed by the earlier Larger Bench in Gauri Plasticulture (P.) Ltd. v. CCE 2006 (202) ELT 199 (Trib. - Mum.). Judicial discipline required to refer the matter in that regard to the Larger Bench to decide the issue on the touchstone of law. The referring Bench while hearing the matter also noticed that the assessee had made allegation that it was required to make huge deposit in its PLA under coercion and to pay duty out of such account being allowed to utilize its credit remaining in the Modvat Account. But such an allegation did not get appreciation for lack of evidence. For the same reasons, there was also a similar denial by the first appellate authority. 1.2 Without citing the statutory provisions in the Act permitting the refund of unutilized Modvat credit in cash, mere plea was raised by the assessee that Modvat credit having remained unutilized at the time when the unit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... arguments made by both sides are summarized as under:- A. Arguments on behalf of assessee 3.1 It was contention on behalf of the assessee that once a decision is given by the Tribunal that should be followed as a matter of judicial discipline, in view of the Tribunal's decision in the case of Madura Coats v. Collector of Central Excise 1996 (82) ELT 512 (Trib. - Mad.). So also reliance was placed on the decision of the Hon'ble Supreme Court in the case of East India Commercial Co. Ltd. v. Collector of Customs 1983 (13) ELT 1342. Reliance was also placed on the decision of the Hon'ble High Court of Karnataka in the case of Slovak India Trading Co. (P.) Ltd. (supra) submitting that the same has been affirmed by the Hon'ble Apex Court as reported in 2008 (223) ELT A 170 (SC). 3.2 It was contended that when the Tribunal's decision is contrary to the High Court's decision the Tribunal is bound to follow the decision of the High Court and the High Court is bound to follow the decision of the Supreme Court for which reliance was placed on the decision in the case of Collector of Central Excise v. Stallion Shox Ltd. 1996 (85) ELT 139 (Trib. - Delhi). 3.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fund, if any, to be made, when input credit remain unutilized. There was no compulsion to make payment of excise duty through the PLA if there was eligibility to the Modvat credit adjustment. Plea of refund does not arise without sanction of law and without mandate; refund is granted by an order for that purpose. Through prescribed procedure of law, refund whether due or not is examined and ordered accordingly. Revenue is not zealous to keep any money with it what is not due to it. Similarly, any legitimate due to the assessee is not denied by the Government. In the absence of statutory provision to grant refund of the input credit no procedure can be evolved or moulded by the Courts or the Tribunal or statutory Authority to order so. Had there been a clear mandate of law to make refund of the unutilized Modvat credit there would not have arisen any difficulty to entertain such a claim. The authorities are not empowered to devise ways and means or lay down procedure to entertain a claim contrary to law. The Larger Bench's decision relied upon by the assessee is of no consequence since that decision has failed to consider scheme of the Modvat credit and has exceeded its advisory....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 ITR 78/137 Taxman 167. 4.4 Learned D.R. relying upon the Apex Court's judgment in the case of Polstar Electronics (P.) Ltd. v. Additional Commissioner, Sales Tax's AIR 1998 SC 897 submitted that when the Acts and Rules do not recognize a claim and no provision gives shelter to a claim, that is not at all a legitimate claim under law. Similarly, a claim not flowing from an order passed by the Authority is not entertainable. Refund cannot be claimed as a matter of right unless recognized by law. Even though Revenue's appeals were dismissed on concession before the Apex Court, that would not prevent revenue to plead that in absence of statutory mandate, a claim entertained would be illegal. So also, relying on the decision of Hon'ble High Court of Bombay in the case of Coral Cosmetics Ltd. v. Union of India 2008 (225) ELT 412 learned D.R. submitted that when there was no provision in the 1944 Rules, refund was not permissible invoking Rule 5 of Cenvat Credit Rules, 2002, since the assessees in the present reference were governed by 1944 Rules. 4.5 Learned D.R. relying on the judgment of the Apex Court in the case of Eicher Motors Ltd. v. Union of India 1999 (10....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5.1 Scheme of Modvat dealing with input credit was subject-matter of analysis in Ichalkaranji Machine Centre (P.) Ltd. v. Collector of Central Excise 2004 (174) ELT 417 (SC). It has been held that Modvat is basically a duty-collecting procedure, which aims at allowing relief to a manufacturer on the duty element borne by him in respect of the inputs used by him. It was introduced with effect from 1-3-1986. The said scheme was regulated under rules 57A to 57J of Central Excise Rules, 1944. Rule 57A, entitled a manufacturer to take instant credit of the central excise duty paid on the inputs used by him in the manufacture of the finished product, provided that the input and the finished product were excisable commodities and fell under any of the specified chapters in the tariff schedule. Under rule 57G, every manufacturer was required to file a declaration before the jurisdictional Assistant Collector, declaring his intention to take Modvat credit after paying duty on the inputs. The object behind rule 57A read with rule 57G and rule 57-I was utilization of credit allowed towards payment of duty on any of the final products in relation to manufacture of which such inputs were in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue "is more properly a statute against fraud rather than a taxing statute, and for this reason properly subject to liberal construction in the Government favour "- Ref: Crawford, Statutory Construction, p. 508.So in interpreting a provision to plug leakage and prevent tax evasion; a construction which would defeat its purpose should be eschewed and a construction which preserves its workability and efficacy should be preferred - Ref: CST v. Sri Krishna Engg. Co. [2005] 2 SCC 692, p. 703. Non-filing of appeal by revenue is not a bar for scrutiny in another case 5.5 Doctrine of merger was pressed into service by the ld. Sr. Counsel, Sri Anand appearing on behalf of the assessee submitting that due to dismissal of Revenue's Civil Appeals, present reference was unwarranted. For appreciation of Doctrine of merger, it would be beneficial to reproduce Paras 40-44 of the judgment of the Hon'ble Supreme Court laying down the law in the case of Kunhayammed v. State of Kerala 2001 (129) ELT 11 (SC) as under: "40. A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger. 41. Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....divisible into two stages. First stage is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. (iii) Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non-speaking order or a speaking order or a speaking one. In either case it does not attract the doctrine o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts as has been held in the case of C.K. Gangadharan v. CIT 2008 (228) ELT 497/172 Taxman 87 (SC). In Gauri Plasticulture (P.) Ltd. (supra) except the claim being permitted under equitable considerations the controversy remained unanswered on the point of law while grant of refund of the nature claimed was not mandate of the Act or the 1994 Rules. The issue, therefore, rightly called for consideration in the present reference on the point of law. Policy of refund of input credit is regulated by statutory provisions 5.7 A distinction between provisions of statute which are of substantive character and are built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished. An eligibility criteria to get refund calls for a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature. The doctrine of substantial complianc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be accepted. Substance and essence of statute are paramount considerations 5.9 The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad number of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute/if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential. In the cases of refund substantial compliance to the law granting refund is sine qua non. Courts have to decide what the law is but not what it should be 5.10 In a plethora of cases, it has been stated by various judicial pronouncements that where the language is clear, the intention of the Legislature is to be gathered from the language used. It is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the extent of payment of duty in cash during that period. It was further held that if no cash payment towards duty was made through PLA and credit would have remained unutilized in the account books, such credit cannot be allowed by way of cash. 5.13 While arriving at the aforesaid conclusion, the Larger Bench in Para 11 of the order recorded the fact that in the case before them debit entry in credit account was made by the Appellants on 23-11-2000, while central excise registration was surrendered by the assessee in September 2000 i.e., before making the debit entry in RG - 23 account. Further observation of the Bench was that even if the amounts towards duty would not have been debited by them in the said account, the same would have remained unutilized. As such, on the success of their appeal before the Commissioner (Appeals), they cannot claim the refund of the same in cash, inasmuch as on account of such debit entry, they have not discharged any duty out of PLA. If the said refund is granted to the appellants by way of cash, the same would amount to enriching them unjustifiably. It is well-settled principles of law that what cannot be done directly should not be allowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....count of any reasons, whatsoever (which may be closure of his factory or final products being exempted, etc.) the refund becomes admissible in cash or by way of credit entry in PLA to the extent duty paid in cash or out of PLA during the relevant period." 5.15 The decision made in Gauri Plasticulture (P.) Ltd. (supra) was called for on the question before the Larger Bench as framed in Para 1 thereof. At the cost of repetition it may be stated that the question before the Larger Bench in that case was "whether duty debited in RG - 23 A Part II can be refunded in cash, when the refund becomes otherwise due". But the conclusion in that case as per Para 10 was that if denial of credit has compelled an assessee to pay duty out of PLA, the refund of the same would be admissible in cash to the extent of payment of duty in cash during that period. However, if no cash payments towards duty were made through PLA and the credit would have remained unutilized in the account books, such credit cannot be allowed by way of cash. Such decision does not appear to have flown from the question appearing in Para 1 of the Larger Bench's decision as stated, aforesaid. Therefore, such a decision h....