2020 (2) TMI 1166 - HC - Central Excise

Refund of CENVAT credit - rejection on the ground of limitation under Section 11B of the Central Excise Act, 1944 - Appellant/Assessee has submitted that the limitation prescribed under Section 11B of the Act does not apply when instead of claiming the refund in cash, the Assessee merely claims the restoration of the CENVAT credit - HELD THAT - The Division Bench of Allahabad High Court in M/S KRISHNAV ENGINEERING LTD. VERSUS CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL AND ANOTHER 2015 (12) TMI 234 - ALLAHABAD HIGH COURT held in para 7 that where it is not a case of refund of duty but a case of reversal of an entry in the books relating to CENVAT credit, the limitation under Section 11B of the Act will not apply. The learned Tribunal has erred in applying the limitation of the Section 11B of the Act in the present case, where the refund of duty was not claimed in cash as such, but only by the restoration of CENVAT credit by the Assessee - When a debit to the CENVAT credit account could be treated as a mode of payment of duty at the time of removal of goods, we fail to understand how the limitation under Section 11B of the Act could be denied when only restoration of such claim is only by way of reversal of that debit entry only upon the returning such CENVAT Invoices and the vendors not having availed any CENVAT credit, being the undisputed facts. The learned Revenue authorities could not deny the adjustment entry of restoration of CENVAT credit in the present case irrespective of limitation. Rule 4(5)(a)(iii) of the Cenvat Credit Rules, 2004 is clear and it permits the Assessee to credit the CENVAT account book, if the goods are received back after 180 days. Therefore, in the face of a clear Rule permitting the said adjustment entry, merely because the Assessee made a claim in prescribed Form R under Rule 127, his claim of adjustment entry could not be refused by the authorities below. The appeal filed by the Assessee deserves to be allowed and the same is accordingly allowed - questions of law are answered in favour of the Assessee and against the Revenue.

Summary

Issues Involved:
1. Provision for seeking restoration of CENVAT Credit under CESTAT Rules.
2. Bar on seeking restoration of CENVAT Credit due to application for refund of duty paid by reversal of credit.
3. Validity of appellant's contention regarding sale not taking place and rejection of rectified invoices by job workers.

Issue-wise Detailed Analysis:

1. Provision for seeking restoration of CENVAT Credit under CESTAT Rules:
The Tribunal held that there was no provision under the CESTAT Rules for seeking restoration of CENVAT Credit. The Assessee argued that the limitation under Section 11B of the Central Excise Act, 1944, did not apply to claims for restoration of CENVAT Credit, as it was not a cash refund but a reversal of credit entries. The Court referenced several High Court judgments, including ICMC Corporation Ltd. Vs. CESTAT, Chennai, which stated that reversing a CENVAT credit entry is an accounting adjustment rather than a refund of duty, and hence Section 11B does not apply.

2. Bar on seeking restoration of CENVAT Credit due to application for refund of duty paid by reversal of credit:
The Tribunal upheld the denial of the refund application on the grounds of limitation under Section 11B. The Assessee contended that since the duty was paid by debiting the CENVAT account, the claim was for restoration of credit, not a cash refund. The Court cited the Allahabad High Court decision in Krishnav Engineering Ltd. V. CESTAT, which held that Section 11B does not apply to reversals of CENVAT credit entries. The Court agreed that the limitation under Section 11B should not bar the restoration of CENVAT credit.

3. Validity of appellant's contention regarding sale not taking place and rejection of rectified invoices by job workers:
The Tribunal rejected the appellant's contention that the sale had not taken place, as the rectified invoices were rejected by the job workers. The Assessee had initially sent materials to job workers under Delivery Challan and later changed the procurement policy to 'Outright Sale/Purchase'. The vendors did not accept the CENVAT invoices and did not avail of any CENVAT credit. The Court found that the Assessee was entitled to restoration of CENVAT credit, as the goods were not sold, and the credit should be re-credited in their accounts.

Conclusion:
The Court concluded that the Tribunal erred in applying the limitation of Section 11B to the Assessee's claim for restoration of CENVAT credit. The Court referenced Rule 4(5)(a)(iii) of the Cenvat Credit Rules, 2004, which allows an Assessee to credit the CENVAT account if goods are received back within 180 days. The Court held that the Assessee's claim for restoration of CENVAT credit should not have been refused merely because it was filed under Form R. The appeal was allowed, and the questions of law were answered in favor of the Assessee, permitting consequential relief.