2015 (7) TMI 459 - AT - Central Excise

Cash refund of pre deposit made by making debit in CENVAT Credit register - Exemption under Notification No.30/2004-CE dt. 9.7.2004 - textile yarn - Denial of refund claim - Held that - both pre-deposit and the subsequent voluntary payment of the demand was paid through debit in cenvat credit. The appellant s main plea for refund in cash is that as they cannot utilize the credit and they are availing full exemption. They relied Tribunal s decision in the case of Raymond Ltd. Vs CCE (2011 (6) TMI 530 - CESTAT, MUMBAI) and the Tribunal decision in CCE Vs Ashok Arc (2005 (8) TMI 128 - HIGH COURT OF JHARKHAND AT RANCHI) where the Tribunal upheld the refund of deposit made through RG-23A Part-I sanctioned in cash. I find in the above cases the Tribunal had allowed refund in cash only on the ground that assessee was not in a position to utilize the credit as the unit was closed. In the case of Raymond Ltd. (2011 (6) TMI 530 - CESTAT, MUMBAI) relied by the appellant, I find that the said order was reviewed and appealed by Revenue before Hon ble Hon ble High Court of Bombay wherein the High court considering substantial question of law had duly admitted Revenue appeal reported in 2014 (6) TMI 897 - BOMBAY HIGH COURT , therefore, the said decision is not applicable to the facts of the present case. Appellant neither closed their unit nor their registration is cancelled and they are fully viable and functioning and producing Denim fabrics and clearing for domestic as well as for exports and also discharging service tax liabilities. Therefore, I am unable to accept the appellant s contention that refund of pre-deposit and voluntary duty payment should be paid in cash only - pre-deposit amount of ₹ 10 lakhs and ₹ 20,63,023/- voluntarily paid cannot be allowed by way of cash refund and said refund is to be allowed by way of re-credit in cenvat account. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Sanction of refund in cash of the pre-deposit amount.
2. Rejection of refund of Rs. 20,60,023/-.
3. Applicability of Rule 11(3) of CCR 2004.
4. Validity of refund of pre-deposit sanctioned in cash.

Issue-wise Detailed Analysis:

1. Sanction of Refund in Cash of the Pre-Deposit Amount:
The Revenue appealed against the sanction of a Rs. 10 lakh refund in cash, which was initially paid by the assessee through a debit in the Cenvat credit account as a pre-deposit. The Tribunal noted that the pre-deposit was made through the Cenvat account and was accepted as compliance. However, the Tribunal held that the refund of the pre-deposit amount could not be sanctioned in cash as there is no provision in the Cenvat Credit Rules (CCR) for such a refund. The Tribunal cited the Larger Bench decision in Steel Strips Vs CCE Ludhiana, which held that cash refunds of unutilized Cenvat credit are only permissible in the case of exports.

2. Rejection of Refund of Rs. 20,60,023/-:
The assessee's appeal concerned the rejection of a refund of Rs. 20,60,023/-, which was voluntarily paid through the Cenvat account. The Tribunal examined whether the credit balance as of 9.7.2004 (the date of opting for full exemption under Notification No.30/2004) should lapse. The Tribunal concluded that the sub-rule (3) of Rule 11, which mandates the lapse of credit, was introduced only on 1.3.2007 and cannot be applied retrospectively. The credit balance related to inputs used in final products already cleared on payment of duty, and there was no provision for lapse of credit before 1.3.2007. Therefore, the rejection of the refund was not justified.

3. Applicability of Rule 11(3) of CCR 2004:
The Tribunal analyzed the applicability of Rule 11(3) of CCR 2004, which was inserted on 1.3.2007. The rule states that the credit balance shall lapse if the final product is exempted absolutely under Section 5A. However, the Tribunal found that Notification No.30/2004 is a conditional exemption, not an absolute one, and therefore, Rule 11(3) does not apply. The Tribunal concluded that the credit balance as of 9.7.2004 should not lapse and can be utilized by the assessee.

4. Validity of Refund of Pre-Deposit Sanctioned in Cash:
The Tribunal addressed the validity of the refund of the pre-deposit sanctioned in cash. The Tribunal held that the refund should not be allowed in cash but should be re-credited to the Cenvat account. The Tribunal referred to the Larger Bench decision in Steel Strips Vs CCE Ludhiana, which emphasized that cash refunds of unutilized Cenvat credit are only permissible in the case of exports. Since the assessee's unit was fully operational and not closed, the refund in cash was not justified.

Conclusion:
The Tribunal concluded that the refund amount of Rs. 30,60,023/- should be allowed by way of re-credit in the Cenvat credit account and not by cash refund. Both the assessee's and Revenue's appeals were partly allowed, and the appeals were disposed of accordingly.