2007 (11) TMI 269 - AT - Central Excise

Out of refund claim of Rs. 20,59,373/- Original Authority sanctioned refund of only Rs. 16,41,737/- and refund of balance amount was rejected on the ground that the appellant was not able to produce the proof of payment - Since the fact of payment has been recorded by the department in the SCN and also in the OIO, the rejection of an amount of Rs. 4,17,636/- on the ground that the appellant did not produce proof of payment is not sustainable

Summary

Issues:
1. Modvat credit on damaged inputs
2. Refund claim rejection due to lack of proof of payment

Modvat credit on damaged inputs:
The appeal was filed against an Order-in-Appeal passed by the Commissioner of Central Excise, Hyderabad, regarding Modvat credit on damaged inputs. The appellants had taken Modvat credit on inputs that were damaged, but the department alleged that the inputs had not gone into the manufacturing process. The appellants voluntarily paid an amount towards wrongly availed Modvat credit. Despite this, the matter was agitated multiple times, leading to penalties imposed on the appellants. The CESTAT finally allowed the appeal with consequential relief, and the appellants applied for a refund of the amount paid. The Original Authority sanctioned a partial refund, but the balance amount was not refunded due to the appellant's inability to produce proof of payment. The Commissioner (A) upheld the rejection of the balance amount refund. The appellant contended that the department should verify PLA entries to grant the refund and argued that after a long period, it was unreasonable to expect them to retain all records.

Refund claim rejection due to lack of proof of payment:
The rejection of the refund claim was based on the appellant's failure to produce proof of payment for the amount paid towards wrongly availed Modvat credit. The learned counsel highlighted that both the show cause notice and the Order-in-Original acknowledged the payment made by the appellants. The Revenue rejected the refund solely on the grounds of lack of proof of payment. However, the Tribunal noted that the department had recorded the fact of payment in the show cause notice and the Order-in-Original. The Tribunal found that the rejection of the refund claim on the basis of lack of proof of payment was unsustainable. The Tribunal allowed the appeal with consequential relief, emphasizing that the rejection was not justified given the department's acknowledgment of the payment in official records.

This judgment delves into the complex issue of Modvat credit on damaged inputs and the subsequent refund claim rejection due to the lack of proof of payment. The Tribunal meticulously analyzed the facts, highlighting the appellant's voluntary payment towards wrongly availed Modvat credit and the department's acknowledgment of this payment in official documents. The Tribunal emphasized the importance of official records in determining refund eligibility and concluded that the rejection based solely on the lack of proof of payment was unjustified. The decision underscores the significance of accurate documentation and the department's responsibility to verify payments before rejecting refund claims.