2021 (7) TMI 953 - AT - Central Excise

Refund of unutilised Cenvat Credit in cash - Credit lying in the books of accounts at the time of closure of factory being 28.6.2017 - non-submission of reliable supporting documents related to refund claim - applicability of Rule 5 of CCR, 2004 - HELD THAT - Reliance placed in the case of UNION OF INDIA VERSUS SLOVAK INDIA TRADING CO. PVT. LTD. 2006 (7) TMI 9 - KARNATAKA HIGH COURT holding that the appellant is entitled to refund of the amount of Cenvat Credit lying in their Cenvat Credit account on closure of business - further it is held that the appellant is entitled to interest as per Rules, as per section 11BB of Central Excise Act, i.e. three months after the date of application till the date of grant of refund. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Rejection of refund application for unutilized Cenvat Credit upon closure of factory.

Analysis:
The appellant appealed against the rejection of their refund application for unutilized Cenvat Credit upon the closure of their factory on 28.6.2017. The appellant, engaged in manufacturing surgical tapes and bandages, had filed a refund claim amounting to ?15,34,137 under Notification No. 27/2012-CE(NT) dated 18.06.2012. The Adjudicating Authority rejected the refund claim citing the absence of provisions under Central Excise Act/Rules for cash refund of unutilized Cenvat Credit on unit closure and lack of reliable supporting documents. The appellant contended that they had paid duties on inputs/raw materials and clearance of finished goods, leading to the accumulation of Cenvat Credit over seven years, which was not in dispute. The appellant emphasized the interpretation of law by various courts, citing the case of Union of India vs. Slovak India Trading Company Pvt Ltd., where the Hon'ble High Court of Karnataka allowed refund of unutilized Cenvat Credit on unit closure.

The Commissioner (Appeals) upheld the rejection, stating that Rule 5 of CCR, 2004 only allowed for the non-utilization of credit in the event of export of goods, not for domestic clearances. The Commissioner relied on the Supreme Court ruling in M/s. Purvi Fabrics and Texturise (P) Ltd. vs CCE, Jaipur II. The appellant then approached the Tribunal, referencing the Karnataka High Court's decision in the Slovak India Trading case, where the Tribunal allowed the refund claim on grounds of closure of the factory and going out of the Modvat scheme.

The Hon'ble Karnataka High Court upheld the Tribunal's decision, stating that the refund claim cannot be rejected when the assessee goes out of the Modvat scheme or when the company is closed. The Revenue appealed to the Supreme Court, which also ruled in favor of the assessee, emphasizing that Rule 5 of Cenvat Credit Rules, 2002 did not apply in cases of factory closure. The Supreme Court highlighted that various similar claims were allowed by the Tribunal, justifying the refund in the closure scenario.

Based on the Karnataka High Court and Supreme Court rulings, the Tribunal allowed the appeal, granting the appellant the refund of unutilized Cenvat Credit with interest as per Section 11BB of the Central Excise Act. The Tribunal's decision aligned with the precedent set by the higher courts, emphasizing the entitlement to refund upon closure of business.