In M/s Nichiplast India Pvt. Ltd. v. Principal Commissioner CGST [Excise Appeal No. 50790 of 2019 decided on July 23, 2021], M/s Nichiplast India Pvt. Ltd. (the Appellant) closed down their manufacturing activities and surrendered their Registration Certificate on June 28, 2017.
Subsequently, the Petitioner filed refund claim of unutilised Cenvat Credit in their account (reflected in their ER-1 return for June, 2017) on July 05, 2017.
A show cause notice dated August 14, 2017 (“SCN”) was issued to the Appellants stating that there were no provisions under Central Excise Act, 1944 (“Central Excise Act”) and Rules made thereunder to sanction refund in cash of unutilised Cenvat Credit on closure of the unit.
Order-in-Original- It was observed that the Appellants had not submitted the reliable supporting documents related to their refund claim and refund claim was rejected.
Order-in-Appeal- Held that thee is no such provision under the Central Excise Act and Rules made thereunder to sanction refund in cash of unutilised cenvat credit on closure of the unit.
The Hon’ble CESTAT, New Delhi relied on Hon’ble Karnataka High Court case of Union of India v. Slovak India Trading Company Pvt Ltd. [Civil Appeal No. 5/2006 dated July 07, 2006] which was subsequently upheld by Hon’ble Supreme Court to hold that the Appellant is entitled to refund of the amount of Cenvat Credit lying in their Cenvat Credit account on closure of business along with interest.
FULL TEXT OF THE CESTAT JUDGEMENT
The appellant is in appeal against rejection of their refund application for refund of Cenvat Credit lying in the books of accounts at the time of closure of factory being 28.6.2017.
2. The facts in brief are that the appellants are registered with erstwhile Central Excise department vide registration No. AAACN22111PEM003 and were engaged in manufacturing of ‘Micro Pores Surgical Tapes’ and ‘First Aid Bandages’(Medicated Adhesive Plasters) falling under Chapter Sub-Heading No. 30059060 and 30051090 respectively of Central Excise Tariff Act, 1985. They were availing facility of Cenvat Credit under Rule 3 of the CCR, 2004. The appellants closed down their manufacturing activities
and surrendered their Registration Certificate on 28.06.2017.
3. The appellants filed refund claim of unutilised Cenvat Credit in their account amounting to Rs. 15,34,137/- (also reflected in their ER-1 return for June, 2017) on 05.07.2017 under Notification No. 27/2012-CE(NT) dated 18.06.2012 as amended issued under Rule 5 of the Rules ibid. The Adjudicating Authority observed that there were no provisions under Central Excise Act/Rules to sanction refund in cash of unutilised Cenvat Credit on closure of the unit. Accordingly, a show cause notice dated 14.08.2017 was issued to the appellants. It was also observed that the appellants had not submitted the reliable supporting documents related to their refund claim. Consequently, the Adjudicating Authority vide order-in-original rejected the said refund claim.
4. Being aggrieved the appellant preferred appeal before commissioner appeals, inter alia stating–
(i) That the inputs /raw materials imported by the appellants involved Countervailing Duty (CVD) @6% in addition to Special Additional Duty (SAD) @ 4%, whereas Central Excise duty @ 6% adv was paid on the clearance of finished goods; thus, the Cenvat Credit had been accumulated over a period of seven years and the same is not under dispute; that they had submitted all required documents while filing the refund claim; Show cause notice has not pointed out any deficiency.
(ii) That the Adjudicating authority had time and again discussed the provisions of Section 11B of the Act as well as Rule 5 of the CCR, 2004 whereas the appellants have emphasized the interpretation of law by various courts; that the scope of Rule 5 ibid is confined to exportable goods and does not take care of domestic clearances. There is no possibility to utilize the credit or carry forward the same for future or to transfer the same to others; it needs to be considered that the duty element paid by the appellants to the treasury shall serve no useful purpose of the taxpayer in the event of closure of the unit or impossibility of adjustment.
(iii) That on the similar issues, Hon’ble High Court of Karnataka in the case of Union of India vs. Slovak India Trading Company Pvt Ltd. as reported in 2006 (201) ELT 559 (Kar) = 2008 (10) STR 101 (Kar) held that refund claim of unutilised Cenvat Credit was admissible in cash on case of closure of the unit. The above view was confirmed by the Hon’ble Supreme Court in the said case as reported in 2008 (223) ELT A-170 (SC).
(iv) That on the similar issues the Commissioner (Appeals), Central Excise, Delhi had allowed refund vide Order-in-Appeal No. 98/CE/DLH 2013 dated 31.07.2013 in the case of M/s. Mohit Industries, 308/1, Old Rohtak Road, New Delhi -110035 and the same was accepted by the department; subsequently, the Assistant Commissioner, Central Excise, Karampura Division, New Delhi had sanctioned the refund vide Order-in-Original dated 06.01.2014.
(v) That the refund amount denied by the Adjudicating Authority should be allowed with interest.
5. Learned Commissioner (Appeals) taking note of Rule 5 of CCR, 2004 and Notification No. 27/2012-CE(NT) dated 18.06.2012 observed that there is no such provision under the Central Excise Act read with Rules to sanction refund in cash of unutilised cenvat credit on closure of the unit. The scope of Rule 5 of CCR is confined to non utilisation of credit in the event of export of goods only and not in respect of domestic clearance. He also relied on the rulings of Hon’ble Supreme Court in the case of M/s. Purvi Fabrics and Texturise (P) Ltd. vs CCE, Jaipur II as reported in [2017 (50) STR 120 (SC)] wherein the Final Order of this Tribunal No. 575/2004 –NB(B) dated 16.7.2004 was upheld.
6. Being aggrieved, the appellant is before this Tribunal. The learned Counsel urges that in the case of Union of India vs. Slovak India Trading Company Pvt Ltd. (supra) Civil Appeal No. 5/2006 dated 7.7.2006, the Hon’ble High Court of Karnataka in similar facts and circumstances decided the issue where the appellant was engaged in manufacture of sheets. Subsequently, they surrendered their registration and filed refund application. During internal audit, it was noted that assessee has availed Cenvat Credit of raw materials received by them during the past on the strength of photocopies of the duplicate copy of invoices and the original copies of invoices were never produced. He however, stated that Cenvat Credit availed was irregular as there was neither production nor clearance of finished goods. The refund was rejected on the ground that there is no provision that under Rule 5 of CCR, 2002 with regard to such refund. Subsequently, the Tribunal allowed the appeal and thereafter the Revenue carried out the appeal before Hon’ble Karnataka High Court and following questions were framed for decision:
(a) Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no provision in Rule 5 of Cenvat Credit Rules 2002, to refund the unutilized Credit?
(b) Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no production and there is no clearance of finished goods?
(c) Whether under the facts and circumstances of the case the Tribunal is right in holding that respondent is entitled for refund even if it goes out of Modvat Scheme or Company is closed?
7. The Hon’ble High Court observed that the Tribunal is justified to allow the refund claim on the ground that the refund cannot be rejected when the assessee goes out of modvat scheme or when the company is closed. The Hon’ble High Court observed that the Tribunal noticed the various case laws in which similar claims were allowed. The Tribunal in view of the High Court decision is fully justified in ordering refund particularly in the light of closure of factory and in the light of the assessee going out of Modvat scheme. Accordingly, the Hon’ble High Court answered the questions in favour of the assessee and against the Revenue.
8. Being aggrieved in view of order of Hon’ble Karnataka High Court, Revenue further preferred appeal before Hon’ble Supreme Court. The Hon’ble Supreme Court vide its judgement dated 7.7.2006 passed the following order:
“4. Admitted facts would reveal of a claim of cash refund and admitted facts would reveal of rejection at the hands of the Assistant Commissioner and also the appellate authority. The Tribunal has chosen to allow the claim application on the ground that refund cannot be rejected when the assessee goes out of Modvat scheme or when the Company is closed. The argument is that there is no provision for refund in terms of Rule 5 of Cenvat Credit Rules, 2002. Rule 5 reads as under:
“Rule 5. Refund of CENVAT Credit: When any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification:
Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty.”
5. There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection as rightly ruled by the Tribunal. The Tribunal has noticed the 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.”
9. Learned Counsel also relies on other judgments referred to hereinabove which have been taken note of by Hon’ble Supreme Court. Learned Counsel further stated that it is admitted fact that pursuant to closure of the factory on 28.6.2017, the appellant assessee did not migrate to GST regime. Accordingly, he prays for allowing the appeal.
10. Learned Counsel also relies on the rulings of Hon’ble High Court of Delhi in the case of Brand Equity Treaties Ltd. and others in WPC 11040/2018 being judgement dated 5.5.2020, in a bunch of writ petitions, wherein the Delhi High Court taking notice of the difficulties faced by several assessee who have migrated to GST regime, taking judicial notice that the petitioners had failed in their repeated attempt to file Form TRAN 1 within the stipulated time and/or extended time, which entitles them to avail the Input tax credit. Accordingly, the Delhi High Court permitted them to avail and file relevant TRAN 1 on or before 30.6.2020. Further directing the Revenue to open the online portal to facilitate the petitioners to file form TRAN 1 or accept the same manually. Further, it was observed that other similar situated tax payers should also be entitled to avail the benefit of this judgement. Accordingly, the learned Counsel has urged that as the ruling of Hon’ble Karnataka High Court was confirmed by the Hon’ble Supreme Court, the benefit of same should be available to them also.
11. Shri P Juneja, Learned Departmental Representative appearing for the department relies on impugned order.
12. Having considered the rival contentions, following the rulings of Karnataka High Court as confirmed by the Hon’ble Supreme Court, I hold that the appellant is entitled to refund of the amount of Cenvat Credit lying in their Cenvat Credit account on closure of business. I further direct that the appellant is entitled to interest as per Rules, as per section 11BB of Central Excise Act, i.e. three months after the date of application till the date of grant of refund. Appeal Allowed.
[Pronounced in the open Court on 23.07.2021 ]
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