2008 (8) TMI 588 - AT - Service Tax

Cash refund - Cenvat credit on capital goods - Rule 5 of the Cenvat Credit Rules - the respondents closed the unit as the unit is closed they would not be in a position to utilize the Cenvat credit - there is plethora of case-laws which hold that when the amount lying in the Cenvat account cannot be utilized then the assessees are entitled for cash refund - The amount lying unutilized on account of the closure of the factory in the Cenvat credit should be refunded - Decided in favor of the assessee

Summary

Issues:
1. Refund of unutilized Cenvat credit on capital goods due to factory closure.

Analysis:
The appeal was filed by the Revenue against the Order-in-Appeal passed by the Commissioner of Central Excise and Customs, Guntur, rejecting the refund claim of the respondent who had taken Cenvat credit on capital goods amounting to Rs. 15,03,931. The lower authority denied the refund, stating it would lead to non-payment of duty on capital goods, and there was no provision in the Cenvat Rules for such refunds. However, the Commissioner (Appeals) allowed the cash refund, citing a previous decision by the CESTAT, Chennai, which held that unutilized Cenvat credit should be refunded when a factory is closed, as it does not amount to refunding duty on capital goods but only the credit. The Revenue objected, claiming there was no provision for such refunds and the cited case laws were irrelevant.

The Tribunal, after considering various case laws, including Union of India v. Slovak India Trading Co. Pvt. Ltd. and others, established that when Cenvat credit cannot be utilized due to factory closure, the assessee is entitled to a cash refund. The Hon'ble High Court of Karnataka also addressed specific questions raised by the Revenue, clarifying that there is no express prohibition on refunding unutilized credit, affirming the correctness of the Commissioner (Appeals)' decision. The Tribunal upheld the decision, emphasizing that unutilized credit due to factory closure should be refunded, and dismissed the Revenue's appeal, citing the relevance of the Chennai Bench Tribunal's decision.

In conclusion, the Tribunal ruled in favor of the respondent, affirming the entitlement to a refund of unutilized Cenvat credit on capital goods when a factory is closed, based on established case law principles and the absence of explicit prohibitions on such refunds. The decision aligned with previous judgments and upheld the Commissioner (Appeals)' reasoning, rejecting the Revenue's appeal.