2005 (3) TMI 266 - AT - Central Excise

Refund - Cenvat/Modvat on inputs - manufacture of Polyester Viscose Blended Yarn - HELD THAT - The expression inputs used in Rule 5 covers all inputs including capital goods as defined in Rule 2. Before sanctioning any refund under Rule 5 of Cenvat Credit Rules one has to only examine whether the accumulated credit pertains to inputs that have gone into the production of goods which were exported and secondly whether the application for refund is in no position to utilise the accumulated credit. The Notification issued under Rule 5 does not say that if a manufacturer exporter fails to make an application for refund of accumulated credit at the end of the quarter he would not be entitled for refund of credit which accrued to him in the previous quarter. Thus we are unable to agree with the ld. Commissioner that the previous balance of credit should be deducted from the accumulated credit during the quarter for which refund application is made. We also do not agree with the finding that capital goods credit should be deducted while arriving at the correct amount of refund. The order of the Commissioner is set aside and remanded to him for a fresh consideration.

Summary

Issues: Refund claim under Rule 5 of Cenvat Credit Rules, 2002 for accumulated credit, consideration of opening balance in refund calculation, treatment of capital goods credit in accumulated credit, entitlement for refund if application not made at the end of the quarter.

Analysis:
1. The appellant filed a refund claim under Rule 5 of the Cenvat Credit Rules, 2002, seeking a refund of accumulated credit for a specific quarter. The Commissioner initially allowed a refund of a lesser amount than claimed by the appellant based on calculations involving opening and closing balances of Cenvat credit for the relevant period.

2. The Commissioner's decision was based on the interpretation that the opening balance of credit should be deducted from the accumulated credit for the quarter in question. However, the Tribunal found this interpretation to be erroneous as neither Rule 5 nor the related Notification restrict the consideration of opening balance in refund calculations. The Tribunal emphasized that the key criteria for refund eligibility are the utilization of credit for duty payment and the inability to utilize the credit, not the opening balance.

3. The Tribunal further disagreed with the Commissioner's view that capital goods credit should be excluded from the accumulated credit for the purpose of refund calculation. It clarified that the term "inputs" in Rule 5 encompasses all inputs, including capital goods, as defined in the Rules. Therefore, the Tribunal directed the Commissioner to reconsider the case, focusing on whether the credit pertains to inputs used in goods exported and whether the credit could have been used for domestic duty payments.

4. The Tribunal highlighted that the Notification under Rule 5 does not impose a requirement for a manufacturer to apply for a refund at the end of each quarter to be eligible for a refund of accumulated credit. The Tribunal set aside the Commissioner's order and remanded the case for fresh consideration, instructing the Commissioner to adhere strictly to the provisions of Rule 5.

5. Consequently, all three appeals were allowed by way of remand, directing the Commissioner to re-examine the refund claims in light of the Tribunal's observations and directions, ensuring compliance with Rule 5 of the Cenvat Credit Rules, 2002.