2016 (6) TMI 673 - AT - Central Excise

Refund of CENVAT credit remaining unutilized - closure of the unit - Held that - When the credit is not questioned as ungenuine and there is no circumstance brought out by Revenue that there is a possibility to utilize the credit and also there being no law to carry forward such credit for future or to transfer the same to others, in such circumstance, it may be considered that the duty element paid by the assessee to the treasury shall serve no useful purpose of the taxpayer in the event of closure of the unit or impossibility of adjustment. The State should not be enriched at the cost of the citizen in such circumstance. In the result, appeal is allowed and refund is admissible.

Summary

Issues: Refund of unutilized CENVAT credit for domestic clearances

Analysis:
1. Issue of Refund Eligibility under Rule 5: The appellant sought a refund of unutilized CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004, due to the closure of their unit. The appellant relied on a previous decision upheld by the Hon'ble High Court of Karnataka in the case of Union of India Vs. Slovak India Trading Co. P. Ltd. to support their claim.

2. Contention of the Learned AR: The Learned AR argued that Rule 5 only allows refunds for unutilized input credit related to the manufacture of exportable goods or intermediate goods cleared for export. In cases where input credit is used for manufacturing goods for domestic clearance, unutilized CENVAT credit is not refundable as per the existing statutory provisions.

3. Judicial Analysis: The Tribunal acknowledged the limitation of Rule 5 to cases involving exportable goods and intermediate goods cleared for export. However, in situations where assesses are unable to utilize the unutilized CENVAT credit due to circumstances like business closure, the law should not lead to absurdity or impossibility. The Tribunal referenced the decision of the Hon'ble High Court of Karnataka in the Union of India Vs. Slovak India Trading Co. P. Ltd. case, where a refund was allowed due to the closure of the company, emphasizing that in the absence of a prohibition in Rule 5, refunds may be permissible.

4. Precedents and Legal Interpretation: The Tribunal highlighted that when genuine credit remains unutilized, and there is no possibility of utilizing it in the future or transferring it to others, the duty element paid by the assessee should not serve no useful purpose. Citing precedents like Salonah Tea company Ltd. Vs. Superintendent of Taxes and Union of India Vs. ITC Ltd., the Tribunal emphasized that the state should not benefit at the expense of the taxpayer in cases of closure or impossibility of adjustment.

5. Comparison with Previous Judgments: The Tribunal referenced the judgment of the Hon'ble High Court of Andhra Pradesh in the case of CCE, Hyderabad Vs. Apex Drugs & Intermediates Ltd., noting the distinction between cases involving exportable goods covered by Rule 5 and cases like the one in the Hon'ble High Court of Karnataka, which dealt with domestic clearances.

6. Conclusion: Ultimately, the Tribunal allowed the appeal, ruling that a refund of unutilized CENVAT credit for domestic clearances was admissible in the given circumstances, considering the absence of provisions for such situations in Rule 5 and the principles laid down in relevant legal precedents.