2006 (7) TMI 9 - HC - Central Excise

Central Excise - Refund - Cenvat/Modvat - Assessee made claim for unutilized credit when there was no manufacture in the light of closure of factory and he has come out of Modvat scheme - Refund of credit is admissible

Summary

Issues:
1. Interpretation of Rule 5 of Cenvat Credit Rules 2002 regarding refund of unutilized credit.
2. Entitlement for refund in the absence of production and clearance of finished goods.
3. Entitlement for refund when going out of Modvat Scheme or company closure.

Analysis:

Issue 1: Interpretation of Rule 5 of Cenvat Credit Rules 2002
The Respondent, a shoe manufacturer, surrendered their registration and applied for a refund of Rs. 4,15,057 claiming irregularly availed Cenvat Credit. The Revenue issued a show cause notice for irregular credit availed and rejected the refund claim. The Tribunal, however, allowed the appeal, stating that refund cannot be denied when a company goes out of the Modvat scheme or closes. The Court observed that Rule 5 of the Cenvat Credit Rules 2002 allows for refund of credits used in final products cleared for export, but since there was no manufacturing activity due to company closure, Rule 5 did not apply. The Tribunal's decision to order a refund was upheld, citing similar precedents where such claims were allowed.

Issue 2: Entitlement for refund without production and clearance of finished goods
The Revenue argued against the refund, contending that there was no production or clearance of finished goods, making the Cenvat credit irregular. Despite this, the Tribunal ruled in favor of the Respondent, emphasizing that the absence of manufacturing activity due to the company closure justified the refund. The Court agreed with the Tribunal's decision, stating that Rule 5 did not apply in this scenario, leading to the allowance of the refund claim.

Issue 3: Entitlement for refund upon going out of Modvat Scheme or company closure
The Tribunal's decision to grant the refund was based on the grounds that the company had exited the Modvat Scheme and subsequently closed down. The Court concurred with this reasoning, highlighting that Rule 5 did not preclude refunds in cases where manufacturing activities ceased due to company closure. The Court upheld the Tribunal's decision, ruling in favor of the Respondent and against the Revenue on all three questions raised.

In conclusion, the Court upheld the Tribunal's decision to allow the refund claim of the Respondent, emphasizing that the circumstances of company closure and exiting the Modvat Scheme justified the refund, even in the absence of production and clearance of finished goods.