2014 (10) TMI 677 - AT - Central Excise

Denial of refund claim of unutilized CENVAT Credit - Refund on closure of factory - The main contention of the learned Counsel of the appellants is that Rule 5 allows refund in cases where for any reason adjustment of accumulated credit is not possible against duty on final products cleared for home consumption. The closure of their factory is well covered by the phrase for any reason - Doctrine of merger of appeal - Held that - Important part of Rule 5 is that it allows refund of unutilized CENVAT Credit subject to such safeguards, conditions and limitations as may be specified by the Central Government by Notification. It is seen that the Central Govt. has issued Notification 5/2006 dated 14.03.2006 which prescribes the conditions and limitations for availing the refund. The basis of determining the refund amount is the export clearances of the final products as mentioned in the appendix to the Notification. The Notification provides for submission of documents such as shipping bills etc. If the appellants contentions were accepted it would mean that the reference to conditions and limitations in Rule 5 is to no effect and such conditions specified in Rule 5 read with Notification 5/2006 are superfluous. Rule 5 clearly states that refund shall be allowed subject to such conditions as may be specified. In the present case the conditions are not fulfilled. Therefore, refund in such cases of closure of factory is not provided under the statute. - Decided against the assessee. If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. with due respect to High Court s observation in the matter in the case of the appellants, and after detailed analysis, have come to the conclusion that the refund claim does not have sanction of law - Decided against assessee.

Summary

Issues Involved:
1. Denial of refund claim of Rs. 35,49,815 under Rule 5 of the Cenvat Credit Rules, 2004.
2. Interpretation of Rule 5 of the Cenvat Credit Rules, 2004.
3. Applicability of judicial precedents and the doctrine of merger.

Detailed Analysis:

1. Denial of Refund Claim:
The appellants, M/s. Phoenix Industries Pvt. Ltd., appealed against the Order-in-Appeal dated 11.07.2012, which upheld the adjudicating authority's decision to deny the refund claim of Rs. 35,49,815. The appellants had surrendered their Central Excise registration upon selling their assets and claimed a refund of the credit balance in their CENVAT account under Rule 5 of the Cenvat Credit Rules, 2004. The adjudicating authority rejected the refund claim on the grounds that Rule 5 does not provide a legal basis for cash refunds of unutilized credit due to factory closure, except for credits attributable to inputs used in exported final products.

2. Interpretation of Rule 5 of the Cenvat Credit Rules, 2004:
The appellants argued that Rule 5 allows refunds when adjustment of accumulated credit is not possible, and factory closure should be covered under "for any reason." They relied on several judgments, including M/s Jain Vanguard Polybutlene Ltd. and Union of India v. Slovak India Co. Pvt. Ltd., which allowed refunds of unutilized CENVAT Credit in similar cases. However, the Tribunal disagreed with this interpretation, stating that Rule 5 specifically allows refunds only when the CENVAT Credit cannot be adjusted against duty on final products cleared for home consumption or for export on payment of duty. The Tribunal emphasized that the scheme of CENVAT Credit is to prevent the cascading effect of indirect taxes and that granting refunds in cases of factory closure without the inputs being used in the manufacture of final products would be illogical and against the law.

3. Applicability of Judicial Precedents and the Doctrine of Merger:
The appellants cited several judicial precedents to support their claim. However, the Tribunal noted that the Larger Bench decision in Steel Strips v. Commissioner of Central Excise Ludhiana held that refunds in such cases are not permissible. The Tribunal also discussed the doctrine of merger, referring to the Supreme Court's judgment in Kunhayammed v. State of Kerala, which clarified that dismissal of a Special Leave Petition (SLP) does not constitute a declaration of law by the Supreme Court and does not attract the doctrine of merger. The Tribunal concluded that the right to refund does not accrue under the law, and the decisions of the High Courts and the Apex Court cited by the appellants do not alter this position.

Conclusion:
The Tribunal dismissed the appeal, holding that the refund claim does not have the sanction of law. The Tribunal emphasized that Rule 5 of the Cenvat Credit Rules, 2004, allows refunds only when adjustments of CENVAT Credit are not possible for goods cleared for home consumption or export on payment of duty, and not for factory closures. The Tribunal also highlighted that the judicial orders cited by the appellants have not attained finality and do not support the claim for refunds in cases of factory closure.