2017 (1) TMI 415 - AT - Central Excise

Refund claim - MODVAT credit lying unutilised as on date of intimation of closure in February 2007 - time limitation - failure to furnish documents in original - Held that - The absence of a provision for refund also implies the absence of a mechanism for processing a refund claim. The safeguards, conditions and limitations that are specified in a mechanism designed for the specifically permitted situation of refunds may not necessarily apply to the situation of a manufacturer who closes the factory of production. It could also well lead to claims by functioning undertakings which would throw the entire scheme into disarray. The Larger Bench has adduced to the lack of statutory provision for grant of refund of credit lying unutilized at the time of closure of a factory. I have referred also to the lack of safeguards, conditions and limitations to handle such eventuality and to which all refund claims are, necessarily, subject. Refund disallowed - appeal dismissed - decided against appellant.

Summary

Issues Involved:

1. Rejection of refund claim for MODVAT credit lying unutilized at the time of factory closure.
2. Grounds for rejection beyond the show cause notice.
3. Applicability of precedents and judicial decisions.
4. Statutory provisions and mechanisms for refund claims.

Detailed Analysis:

1. Rejection of Refund Claim for MODVAT Credit Lying Unutilized at the Time of Factory Closure:

The appellant, a manufacturer of 'MS CTD bars,' ceased production in February 2007 and had an unutilized MODVAT credit balance of ?1,70,621/-. They sought a refund for this amount, which was rejected by the competent authority and upheld by the first appellate authority. The appellant argued that they were entitled to a cash refund of the accumulated credit at the time of the factory's closure and sale. They relied on the Tribunal's decision in Slovak India Trading Co Limited v. Commissioner of Central Excise, which was upheld by the Karnataka High Court and affirmed by the Supreme Court. However, the Tribunal noted that the decision in re Slovak India Trading Co Ltd was not binding as it was not in conformity with the decision of the Larger Bench in re Steel Strips, which denied the scope for refund of credit as money.

2. Grounds for Rejection Beyond the Show Cause Notice:

The appellant contended that the rejection of their refund claim was based on grounds not mentioned in the show cause notice, specifically the lack of excess payment to warrant a refund. They argued that the initial grounds for rejection were limitation, failure to evidence payment under protest, and insufficiency of original documents. The Tribunal found that the rejection was justified as the refund provision was not extendable to the appellant's claim, and thus, there was no need to re-examine the initial grounds.

3. Applicability of Precedents and Judicial Decisions:

The Tribunal examined various judicial decisions, including the conflicting precedents set by the Karnataka High Court in re Slovak India Trading Co Ltd and the Larger Bench in re Steel Strips. The Tribunal emphasized that the decision of the Larger Bench, which had considered the judgment of the Karnataka High Court, prevailed. The Larger Bench had concluded that the absence of a statutory provision for refund of unutilized credit at the time of factory closure meant that such refunds were not permissible. The Tribunal also noted that the decision in re Computer Graphics Ltd, which followed the Karnataka High Court's judgment, was based on an erroneous assumption and was not binding.

4. Statutory Provisions and Mechanisms for Refund Claims:

The Tribunal highlighted that the scheme of MODVAT or CENVAT credit is intended to facilitate the use of accumulated credit for discharging duty liability on output, eliminating the cascading effect of taxation. The Tribunal noted that the absence of a provision for refund implies the absence of a mechanism for processing such claims. The safeguards, conditions, and limitations specified in a refund mechanism may not apply to a manufacturer who closes the factory. The Larger Bench in re Steel Strips had emphasized the need for strict compliance with statutory provisions for refunds and concluded that no statutory mandate existed for granting refunds of unutilized credit at the time of factory closure.

Conclusion:

The Tribunal found that the appellant's refund claim was devoid of merit and upheld the impugned order, affirming the rejection of the refund claim. The decision was pronounced in court on 05/12/2016.