2011 (5) TMI 111 - AT - Central Excise

Refund - Cenvat credit - Refund of unutilized credit due to unit becoming inoperative - Held that - Modvat law has codified procedure for adjustment of duty liability against Modvat Account - Refund results in outflow from treasury, which needs sanction of law and an order of refund for such purpose is sine qua non. Law has only recognized the event of export of goods for refund of Modvat credit, as has been rightly pleaded by revenue and present reference is neither the case of otherwise due of the refund nor the case of exported goods. Similarly, absence of express grant in statute does not imply ipso facto entitlement to refund. So also absence of express grant is an implied bar for refund. When right to refund does not accrue under law, claim thereof is inconceivable. - Decided against the assessee

Summary

Issues Involved:
1. Refund of unutilized Modvat credit in cash.
2. Allegation of coercion by the department.
3. Applicability of judicial precedents and statutory provisions.
4. Interpretation of Modvat/Cenvat rules and refund policies.
5. Equity and good conscience in fiscal matters.

Issue-Wise Detailed Analysis:

1. Refund of Unutilized Modvat Credit in Cash:
The primary issue referred to the Larger Bench was whether an assessee, who paid duty through the PLA account despite having sufficient Modvat/Cenvat credit due to coercion or otherwise, can claim a refund of the unutilized credit in cash when the factory becomes inoperative with no likelihood of restarting production. The referring Bench observed that the law during the material period did not permit cash refunds of unutilized Modvat credit. The Bench noted that the earlier decision in Gauri Plasticulture (P.) Ltd. v. CCE allowed such refunds without examining the statutory provisions and objectives of the Modvat credit procedure. The referring Bench highlighted that the Hon'ble High Court of Calcutta in Rasoi Ltd. v. Union of India held that there was no provision for cash refunds in the money credit scheme, thus denying the refund.

2. Allegation of Coercion by the Department:
The assessee alleged that they were coerced by the department to make huge deposits in the PLA and pay duty from such accounts, despite having sufficient Modvat credit. However, this allegation lacked evidence and was not appreciated by the first appellate authority. The referring Bench also did not find merit in this allegation due to the absence of supporting evidence.

3. Applicability of Judicial Precedents and Statutory Provisions:
The assessee relied on the decision of the Hon'ble High Court of Karnataka in Union of India v. Slovak India Trading Co. (P.) Ltd., which was affirmed by the Apex Court, to argue that Rule 5 of the Central Excise Rules, 2002 permitted refunds of unutilized Modvat credit. However, the referring Bench noted that the substantive provision of the statute regarding refunds was not scrutinized in that judgment, and the appeal by revenue was dismissed based on the concession by the learned Additional Solicitor General. The Bench also referred to decisions in Eicher Tractors, Shree Prakash Textiles, Babu Textile Industries, and Arcoy Industries, which were not appealed against by the revenue, thus questioning the correctness of the Slovak India Trading Co. judgment.

4. Interpretation of Modvat/Cenvat Rules and Refund Policies:
The Larger Bench analyzed the scheme of Modvat, which was primarily a duty-collecting procedure allowing relief to manufacturers on the duty element borne on inputs used in manufacturing. The Bench emphasized that the Modvat procedure aimed at adjusting input credit against duty liability on manufactured goods and did not provide for cash refunds of unutilized credit, except in cases of export. The Bench highlighted that taxation considerations stem from administrative experience and not from artistic visualization or neat logic, thus literal interpretation must prevail. The Bench also noted that equitable considerations are out of place while interpreting tax laws, and courts cannot imply provisions not expressed in the statute.

5. Equity and Good Conscience in Fiscal Matters:
The Bench reiterated that fiscal statutes must be interpreted strictly, and courts cannot stretch a point in favor of taxpayers to grant benefits not available to others. The doctrine of substantial compliance was discussed, emphasizing that actual compliance with the statute's substance is necessary. The Bench concluded that refunds and exemptions are governed by strict compliance with statutory provisions, and courts cannot rewrite legislation or add words to a statute. The Bench stated that no person has a vested right in any course of procedure and must proceed according to the mandate of the statute governing the subject. The claim of refund is not a matter of right unless vested by law.

Conclusion:
The Larger Bench concluded that the refund of unutilized Modvat credit in cash is not permissible except in cases of export. The Bench answered the referred question negatively and in favor of the revenue, stating that the absence of express provision for cash refunds implies an implied bar for such refunds. The Bench emphasized that equity, justice, and good conscience are not guiding factors for fiscal courts, and the present reference must be answered in favor of the revenue. The respective cases were directed to be placed before the appropriate Bench to decide the appeals.