Case Law Details
Alfred Berg & Co. (I) Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
No refund of outstanding CENVAT credit after closure of factory
The CESTAT, Chennai in M/s. Alfred Berg & Co., (I) Pvt. Ltd. v. The Commissioner of GST and Central Excise [Excise Appeal No. 41009/2018 dated August 02, 2023] held that no refund of unutilized CENVAT credit after stopping manufacturing due to sale of business to another company.
Facts:
M/s. Alfred Berg & Co., (I) Pvt. Ltd. (“the Appellant”) was a manufacturer who had stopped their manufacturing activities and sold the assets to another company. The Appellant then filed a refund claim of the accumulated balance of CENVAT credit (“the Credit”).
A show cause notice proposing denial of the refund claim was issued to the Appellant. Subsequently, the adjudicating authority passed an order (“the Impugned Order”) rejecting the refund claim.
Aggrieved by the Impugned Order, the Appellant filed an appeal before the CESTAT, Chennai.
Issue:
Whether the Appellant is eligible for a refund of the credit outstanding in their CENVAT account at the time of closing of factory?
Held:
The CESTAT, Chennai in Excise Appeal No. 41009/2018 held as under: –
- Noted that, the facts of the present case are similar as in Gauri Plasticulture Pvt. Ltd. v. Commissioner of Customs Excise, Indore 2019 (30) GSTL 224 (Bom.) wherein the Hon’ble Bombay High Court denied the refund of CENVAT credit to the assessee after closure of factory.
- Held that, the Appellant is not eligible for a refund of the credit outstanding in their CENVAT account at the time of closure of his factory.
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Introduction: In a critical ruling by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chennai, the plea for refund of balance unutilised Cenvat Credit following the sale of a factory was declined. This case, Alfred Berg & Co. (I) Pvt. Ltd. Vs Commissioner of GST & Central Excise, represents an important interpretation of legal principles and credit utilization.
Analysis: The appellant, Alfred Berg & Co., once engaged in the manufacture of pharmaceutical products, ceased operations and sold the factory to M/s Mesmer Pharmaceuticals. Subsequently, they filed a refund claim for the unutilised Cenvat Credit. However, the original authority rejected the claim, and the commissioner appeals upheld the rejection.
The appellant’s counsel argued that the company should be eligible for a refund. However, the recent decision of the High Court in Gauri Plasticulture Pvt Ltd. Vs Commissioner of Customs Excise, Indore, set a precedent against the appellant. The Honorable High Court in the said judgement had considered various past decisions and concluded that the refund cannot be granted.
The facts and legal proceedings were meticulously examined, considering past rulings and the applicable rules under the Central Excise Tariff Act 1985. The detailed analysis led to a confirmation that there was no express provision to grant cash refund under the existing rules.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1. Brief facts are that the appellant was earlier a manufacturing factory engaged in manufacture of P or P Medicaments falling under chapter 13 of Central Excise Tariff Act 1985. The appellant stopped their manufacturing activity in the year 2014 and sold the assets to another company namely M/s. Mesmer Pharmaceuticals through a Memorandum of Understanding dated 10.11.2014.
2. The appellant company then filed a refund claim for refund of Rs.2,17,45,625 vide their letter dated 18/7/2016 being the book balance outstanding in their CENVAT account.
3. Thus the appellant sought for refund of accumulated CENVAT credit lying in their books by way of cash from the department. Show cause Notice dated 24/8/2016 was issued to the appellant proposing to deny the refund claim. After due process of law, the Original authority rejected the refund claim. Against this order the appellant preferred an appeal before the commissioner appeals who vide order impugned herein upheld the rejection of refund claim. Hence this appeal.
4. The Ld. counsel Shri M. N. Bharathi appeared and argued for the appellant. It is submitted that the appellant sold their factory to M/s M. N. Pharmaceutical and they have ceased to be the manufacturer. The refund claim is for refund of the unutilised credit lying in the CENVAT account. The decision in the case of Union of India vs Slovak India Trading Company Ltd. reported in 2008 (223) E.L.T. A170 (SC) was referred to by the learned counsel for the appellant to submit that the appellant would be eligible for refund. However, the Ld. counsel submitted by the recent decision of the High Court in the case of Gauri Plasticulture Pvt Ltd. Vs Commissioner of Customs Excise, Indore 2019 (30) GSTL 224 (Bom.), the issue stands covered against the appellant and that the Honorable High Court in the said judgement had also considered the decision of the Honorable Supreme Court in the case of Slovak India Trading Co. Pvt. Ltd. (Supra)
5. The Ld. AR Shri Rana Rudra Pratap Singh appeared for the department and supported the finding in the impugned order.
6. Heard both sides.
7. The issue is whether the appellant is eligible for refund of unutilised credit lying in their CENVAT account at the time of closing the factory. The Honorable High Court of Bombay in the case of Gauri Plasticulture Pvt. Ltd. (Supra) had occasion to consider the very same issue. The decision of the Honorable High Court of Karnataka in the case of Union of India Vs Slovak India Trading Co. Pvt. Ltd. (Karnataka) was referred to by the Honorable High Court. It was observed that the Division Bench of the Honorable High Court of Karnataka in the said case took a view that there is no express prohibition in Rule 5 to refund the unutilised CENVAT credit. The revenue filed an appeal against such decision before the Honorable Apex court, and on the basis of the representation made by ASG who appeared on behalf of the Union of India that in similar decisions passed by the Tribunal, the revenue had not filed any appeal, the Honorable Apex Court had dismissed the appeal filed by the revenue. Thus there was no declaration of law under Article 141 of the Constitution of India in the said case. After adverting to various decisions on the point the Hon’ble High Court of Bombay held that the refund cannot be granted. The relevant paragraph reads as under:
“31. The sheet anchor of Mr. Patil’s arguments is the judgment of the earlier Division Bench of this Court and that is based on the view taken by the High Court of Karnataka. The High Court of Karnataka has not discussed the scheme of Cenvat credit in details. The South Zonal Bench of the CESTAT in Slovak India (supra) considered the case of refund of unutilised Cenvat credit on account of closure of the factory of the said Slovak India. The Commissioner (Appeals) took the view that there is no provision in Rule 5 of the Cenvat Credit Rules to grant cash refund. After being approached, what the CESTAT observed is that there is a consistent view taken by the Tribunal that such claim is eligible and the assessee can seek refund when it goes out of the Modvat scheme (predecessor of Cenvat) or the unit is closed. This is the reasoning in the Tribunal’s order and though the appeal of the Revenue before the High Court of Karnataka at Bengaluru raised several grounds and pleas, the High Court referred to the arguments and in para 4 of its order, reproduced Rule 5 of the Cenvat Credit Rules, 2002. In para 5, the reasoning of the High Court of Karnataka reads thus :-
“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 rules by the Tribunal. The Tribunal has noticed that 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.”
32. Thus, the High Court of Karnataka took the view that there is no express prohibition in terms of Rule 5 and that rule refers to a manufacturer. Thus, even if there is no manufacture in the light of the closure of the factory, the assessee being a manufacturer is construed as one coming out of the Modvat scheme but still eligible for cash refund. The factory is closed and the inputs were not used in the manufacture of a final product is, thus, overlooked. So long as the assessee is a manufacturer even if his factory is closed, the input credit was available, is thus the view. Hence, the refund was held to be permissible.
33. When the matter was carried to the Hon’ble Supreme Court by the Revenue, the Hon’ble Supreme Court noted the concession of the Learned Additional Solicitor General. That concession is that the views of the Tribunals to the aforesaid effect have not been appealed against by the Revenue/Union of India. Pertinently, there is no concession by the Additional Solicitor General of India on the point of law. Hence, going by this concession on fact, the Special Leave Petition of the Revenue was dismissed. This, by no stretch of imagination, is a confirmation or approval of the view taken by the South Zonal Bench of the Tribunal at Bengaluru or the High Court of Karnataka.
34. Pertinently, when the matter was brought before this Court in the case of Jain Vanguard (supra), this Court, relying upon the judgment in the case of Slovak India (supra) and the order in the Special Leave Petition, dismissed the Revenue’s appeal. The aggrieved Revenue, carried the matter to the Hon’ble Supreme Court and the order passed on that Special Leave Petition reads as under :-
“Delay condoned.
We find no reason to interfere with the impugned order in exercise of our discretion under Article 136 of the Constitution. The Special Leave Petition is, accordingly, dismissed leaving the question of law open.”
35. The Special Leave Petition was dismissed, but the question of law was expressly kept open. It is in these circumstances that we are not in agreement with Mr. Patil that the issue or the controversy before us stands concluded against the Revenue. The question of law was still open to be raised and equally examined by us. There is no question of judicial discipline in such matters. The counsel relied upon this principle of judicial discipline by inviting our attention to the judgment of the Hon’ble Rajasthan High Court in the case of Welcure Drugs and Pharmaceuticals Ltd. Commissioner of Central Excise, Jaipur reported in 2018 (15) G.S.T.L. 257. There, the Hon’ble Rajasthan High Court concluded that the Revenue cannot seek to urge before that High Court that the view taken by four different High Courts approving the order of CESTAT has lost its persuasive value, particularly when the Special Leave Petitions against the view taken by four different High Courts were either not filed or filed but not entertained. Thus, the Tribunals have taken a consistent view and the Revenue could not succeed in having that set aside. It is in these circumstances, the Rajasthan High Court negatived the contention of the Revenue that the Tribunal under the jurisdiction of that High Court could have distinguished the orders and judgments of its Benches. That was found to be contrary to the judicial discipline. It is in these circumstances so also when there was a Larger Bench view of the Tribunal having a binding effect, that the principle of judicial discipline was pressed into service.
36. After the view taken in Steel Strips Ltd. (supra) and which was also fairly brought to our notice, it is evident that this principle has no application to the facts and circumstances before us.
37. Finally, we do not find any merit in the arguments of Mr. Patil to the effect that if the earlier judgment is not appealed against, an appeal against the subsequent order or judgment passed relying upon the earlier judgment cannot be sustained. He pressed into service the judgment of the Hon’ble Supreme Court in the case of Birla Corporation Ltd. Commissioner of Central Excise – 2005 (186) E.L.T. 266 (S.C.). There, the issue was entirely different. The issue was whether the duty paid on spares of ropeway used for the purpose of transporting the crushed limestone from the mines located 4.2 kilometer away to the factory is entitled to Modvat credit. That was disallowed on the ground that ropeway transports raw material from the mines to the factory premises and is not a material handling equipment within the factory premises. It was not disputed that the crushed limestone is brought from the mines to the factory premises where it is deposited utilising the ropeway as a means of transportation.
38. An identical issue came up for consideration in the case of K. Udaipur Udyog Limited v. Commissioner of Central Excise, 2001 (130) E.L.T. 996 (sic). In that case, the Tribunal followed the principles laid down in its prior decision and held that the Modvat credit was admissible. A civil appeal was preferred to the Hon’ble Supreme Court, but that was dismissed as not pressed. That is because the judgment relied upon by the Tribunal in the case of J.K. Udaipur Udyog Limited (supra) and the Commissioner of Central Excise, Chennai v. Pepsico India Holdings Limited 2001 (130) E.L.T. 193 (Tri.) was accepted by the Chief Commissioner of Central Excise, Chennai. In these circumstances, the Special Leave Petition by Birla Corporation Limited came to be allowed. The Hon’ble Supreme Court held that when same question arises for consideration, the facts are almost identical, then, the Revenue cannot be permitted to take a different stand. More so, when the earlier appeal involving identical issue was not pressed and therefore, dismissed. Hence, a contrary stand cannot be taken and that will confuse everybody. This judgment, therefore, has no application to the issue before us.
39. The referring order has already discussed in detail as to how the principle of merger cannot be invoked in this case. In the order passed in the case of Jain Vanguard (supra), the question of law was expressly kept open. Hence, the earlier view of the Tribunal does not merge with dismissal of the Special Leave Petition in the case of Slovak India (supra). Hence, this principle has also no application.
40. As a result of the above discussion, we answer the questions of law framed above as (a) and (b) in the negative. They have to be answered against the assessee and in favour of the Revenue. Questions (a) and (b) having been answered accordingly, needless to state that the order of the Hon’ble Supreme Court in the case of Slovak India (supra) cannot be read as a declaration of law under Article 141 of the Constitution of India.
41. The reference is disposed of accordingly. The appeals filed by respective parties may now be listed before the Division Bench for disposal in accordance with our judgment.”
8. The facts being identical following the above decision we are of the opinion that the refund can not be allowed. The appeal filed by the appellant is dismissed.
(Pronounced in court on 02.08.2023)
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