2016 (4) TMI 61 - HC - Central Excise

Entitlement to Refund of the CENVAT credit amount paid by reversal - refund claim of the amount of reversed CENVAT Credit - Held that - Sub-rule (5C) of the Rules is effective from September 7, 2007 and for input credited earlier, there is no scope of reversal of the credit if the finished product becomes unfit for human consumption unless any condition has been imposed for remission of duty in terms of Rule 21 of the Central Excise Rules, 2002 making it clear that the credit already taken is to be reversed

Summary

Issues:
1. Entitlement to refund of CENVAT credit amount paid by reversal at the insistence of the Insurance-Company.
2. Justification of allowing the refund claim of the reversed CENVAT Credit amount over and above receiving the same amount from the Insurance-Company.
3. Interpretation of Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002 regarding the reversal of credit by excise authorities.

Entitlement to Refund of CENVAT Credit:
The Revenue appealed against the CESTAT judgment questioning the entitlement of the assessee to the refund of the CENVAT credit amount paid by reversal at the insistence of the Insurance-Company. The issue revolved around whether the Insurance-Company had sanctioned and paid the entire Insurance claim inclusive of the CENVAT Credit amount reversed. The Tribunal relied on a larger Bench judgment concerning the provisions of the Cenvat Credit Rules and Central Excise Rules, emphasizing the accrual of credit when raw materials are used in manufacturing dutiable final products. The Tribunal dismissed the appeal, upholding the entitlement of the assessee to the refund, as the judgment applied to the present case.

Refund Claim and Unjust Enrichment:
Another issue raised was the justification of allowing the refund claim of the reversed CENVAT Credit amount over and above the amount received from the Insurance-Company, considering the Principle of unjust Enrichment under Section 11B(2)(b) of the Central Excise Act, 1944. The Tribunal's decision was influenced by the larger Bench judgment, which clarified that the reversal of credit is necessary only in specific circumstances, and the amendment introducing sub-rule (5C) made the reversal applicable prospectively. The Tribunal rejected the Revenue's argument against the applicability of the judgment to the present case, leading to the dismissal of the Tax appeal and O.J.Civil Application.

Interpretation of Rules on Credit Reversal:
The larger Bench's interpretation of Rule 3 of the Cenvat Credit Rules, 2004 and Rule 21 of the Central Excise Rules, 2002 was crucial in determining the reversal of credit by the excise authorities. The Bench highlighted that prior to the introduction of sub-rule (5C), there was no provision for reversing credit lawfully taken by a manufacturer. The amendment under sub-rule (5C) clarified the reversal of credit in specific situations prospectively. The judgment emphasized that the amendment created a new right in favor of the Revenue, and there was no scope for reversal of credit for inputs credited earlier unless specific conditions for remission of duty were met. The Tribunal's decision aligned with this interpretation, leading to the dismissal of the Revenue's appeal.