M/S Lav Kush Textiles, E-227, MIA, Basni, Phase-II, Jodhpur vs The Commissioner, Central Excise, Jaipur-II

The present appeal has been preferred against the judgment

and order dated 03.02.2012 passed by the learned CESTAT and

the order passed by the Commissioner (Appeals) dated

08.12.2008.

Briefly the facts in the case are that the appellant is a

manufacturer of ACSR Conductors of Aluminum falling under the

Chapter 76 of the Central Excise Tariff Act, 1984. In pursuance of

a show cause notice date d 29.08.2003, a demand of Rs.

2,04,554/- was raised against the appellant, out of which Rs.

1,76,516 was confirmed vide order dated 13.03.2005. During the

process, the appellant debited an amount of Rs. 63,001/- under

protest on 09.03.2005 in their RG-23A Part-II register which was

appropriated in the adjudication order stated above. The appeal

against the said order was also rejected by the Commissioner

(Appeals). Thereafter, a further appeal before the Tribunal was

preferred by the appellant and the same was allowed vide order

dated 01.12.2005.

In these circumstances, after final adjudication of the show

cause notice proceedings, the appellant filed a refund application

before the adjudicating authority for the refund of the Cenvat

credit to the tune of Rs. 63,001/- in cash as they had surrendered

their registration certificate. The adjudicating authority sanctioned

a refund of Rs. 63,001/- in favour of the appellant and the cheque

to that effect was also prepared on 12.12.2006.

The Revenue preferred an appeal before the Commissioner

(Appeals) against the sanctioned order dated 14.12.2006 (as

mentioned in the covering letter) and the Commissioner (Appeals)

while allowing the appeal of the revenue set aside the order of

sanctioning the refund in cash to the appellant M/s Lav Kush

Textiles. The assessee, thereafter assailed the validity of the order

passed by the Commissioner before the learned Customs Excise

and Service Tax Appellate Tribunal, but the same was also

rejected, affirming the order of Commissioner (Appeals) vide its

order dated 03.02.2012. The Tribunal relying upon a Larger Bench

decision in the case of Gauri Plasticulture (P) Ltd. Vs. CCE 2006

(202) ELT 199 held that refund in cash is not warranted in the

facts of the present case.

Aggrieved of the order passed by the Tribunal on 03.02.2012

as well as the order passed by the Commissioner (Appeals) on

08.12.2008, present appeal has been filed.

This Court on 21.04.2014 while admitting the present appeal

framed the following substantial question of law:-

"(1) Whether in the absence of any prohibition under the Cenvat Credit Rules, 2002 against refund of Cenvat Credit in cash upon closure of factory, the Adjudicating Authority was justified in allowing cash refund of Cenvat Credit to appellant; and the Appellate Commissioner as also CESTAT have erred in holding that the refund in cash was not warranted in the facts of the present case.?"

Learned counsel for the appellant has submitted that in view

of Rule 5 of the CENVAT Credit Rule, 2002 there is no prohibition

that the appellant will not be entitled to the payment of refund in

cash, more particularly when their factory has already been closed

and there is no manufacturing activities in the process. Learned

counsel further relies upon the judgment in the case of

Commissioner of Central Excise, Ranchi Vs. Ashok ARC reported in

2006 (193) E.L.T. 399 (Jhar.). He further relies upon the judgment

of the Karnataka High Court in the case of The Union of India

(UOI) represented by the Commissioner of Central Excise Vs.

Slovak India Trading Company Private Limited, wherein it has

been held that in view of Rule 5 of the CANVET Credit Rule, the

assessee is entitled for refund in cash. The order of the Karnataka

High Court was assailed before the Hon''ble Supreme Court by way

of Special Leave Petition but the same was rejected on 25.1.2007.

Countering the arguments, the learned counsel for the

respondent Mr. Kuldeep Vaishnav vehemently opposed the

submissions made by Sh. Manoj Bhandari and submitted that the

Tribunal was justified in rejecting the appeal of the appellant, in

view of the Larger Bench decision in Gauri Plasticculture (P) Ltd.

Learned counsel for the revenue further submits that there is no

provision for the payment in cash on account of the refunds in the

CANVET Credit Rules, 2002.

Heard learned counsel for the parties.

In view of the fact that after the cristilization of the claim on

account of the CANVET Credit in favour of the assessee, assessee

was entitled for the refund of Rs. 63,001/- from the revenue which

is not in dispute. It is also a fact that manufacturing unit of

assessee had been closed and the concern of the assessee is not

in production any more. Therefore, in view of Rule 5 which is

reproduced as under:-

"Rule 5. Refund of CENVAT credit.- Where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intemediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home concumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification: Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rabate of duty under the Central Excise Rules, 2002, in respect of such duty."

As far as the provisions under Rule 5 is concerned the words

used are that "manufacturer shall be allowed refund of such

amount subject to such safeguards". The provision, therefore, only

speaks about a refund of amount and, therefore, clearly does not

prohibits for payment of a refund amount in any form including

cash.

The assessee is entitled for refund amount which is due to

him after the proper adjudication of its claim scheme and the only

question which remains for consideration is that when the

manufacturing unit of the assessee is closed, the benefit which is

otherwise available to him is required to be paid and the revenue

cannot deny the benefit of the same.

In Commissioner of Central Excise, Ranchi Vs. ASHOK ARC,

the High Court of Jharkhand has held as under:-

In this petition, the Revenue has raised the following question for reference:

"Whether the learned Tribunal has gravely erred in allowing the Appeal and directing the authority to refund the pre-deposit amount in cash when the same has been deposited through RG 23A Pt.- II i.e. MODVAT account and under the provisions of Central Excise Rules, 1944 no such refund in cash is permissible?

On hearing the parties, we find that the aforesaid issue was raised by the Revenue before the CEGA Tribunal, which answered the same in

favour of the respondent by the impugned order dated 30th April, 2002. The stand of the learned Counsel for the Revenue that the amount should have been adjusted in RG-23A Part-II account can not be accepted, there being no such RG-23 Part- II account available respect of the finished goods. Similar issue was decided by Andhra Pradesh High Court in the case of Deccan Sales Corporation, , as noticed by the CEGA Tribunal and, in fact, no credit account is being maintained by the respondent on account of raising of exemption limit. As the respondent will not be in a position to utilise the credit, the CEGA Tribunal has rightly held that the Revenue should refund the amount to the respondent in cash. There being no substantial question of law, raised for reference, we are not inclined to ask the Tribunal to refer any issue."

Similarly in the Karnataka High Court in the case of The

Union of India (UOI) represented by the Commissioner of Central

Excise Vs. Slovak India Trading Company Private Limited has held

as under:-

Admitted facts would reveal of a claim of cash refund and admitted facts would reveal of rejection at the hands of the Assistant Commissioner and also the appellate authority. The Tribunal has chosen to allow the claim application on the ground that refund cannot be rejected when the assessee goes out of Modvat scheme or when the Company is closed. The argument is that there is no provision for refund in terms of Rule 5 of Cenvat Credit Rules 2002. Rule 5 reads as under?

Rule 5. Refund of CENVAT Credit: When any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used

shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification: Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise. Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty. 5. There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection as rightly ruled by the Tribunal. The Tribunal has noticed various case laws in which similar claims were allowed. The Tribunal, in our view, is fully justified in ordering refund particularly in the light of the closure of the factory and in the light of the assessee coming out of the Modvat Scheme. In these circumstances, we answer all the three questions as framed in para 17 against the Revenue and in favour of the assessee.

The order of the Karnataka High Court has further been

confirmed by the Hon''ble Supreme Court in the SLP mentioned in

the above paragraph. Taking into consideration, the Rule 5 of the

CENVAT Credit Rules 2002, we are of the view that the Tribunal

was not correct while relying upon the judgment of the Larger

Bench in Gauri Plasticculture (P) Ltd. as Rule 5 in no way prohibits

the payment of the refund amount in cash and more particularly

when after a proper adjudication of matter an amount of Rs.

63,001/- is said to have been sanctioned in favour of assessee

(appellant) and the factum of their manufacturing unit having

been closed, we are of the considered opinion that the present

appeal deserves acceptance, the same is, therefore, allowed. The

refund amount due to the appellant is required to be paid in cash

by the revenue. The respondents are directed to pay the same

within a period of two months from today.

Accordingly, the question is answered in favour of assessee

and against the revenue.