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2018 Supreme(Raj) 1606
IN THE HIGH COURT OF RAJASTHAN AT JAIPUR BENCH
K.S. Jhaveri and Vijay Kumar Vyas, JJ.
Welcure Drugs And Pharmaceuticals Ltd. - Appellant
Versus
Commissioner Of C. Ex., Jaipur - Respondent
Central Excise Appeal No. 118 of 2017
Decided On : 07-02-2018
Bharat Rajchandani with Sameer Jain, Daksh Pareek and Arjun Singh, Advocates, for the Appellant; Shri Siddharth Ranka, Advocate, for the Respondent
Refund of CENVAT credit is allowed in case of closure of the manufacturing unit.
Headnote:
CENTRAL EXCISE - REFUND OF CENVAT CREDIT - CLOSURE OF FACTORY - Whether refund of CENVAT credit can be allowed in case of closure of the manufacturing unit?
Fact of the Case:
The appellant, a manufacturer of medicine, closed their factory and applied for a cash refund of the CENVAT credit lying in their Cenvat credit account. The application was rejected by the Assistant Commissioner and Commissioner (Appeals).
Finding of the Court:
The Tribunal erred in rejecting the appellant's claim for refund of CENVAT credit. The appellant was entitled to the refund as they had closed their factory and were unable to utilize the CENVAT credit.
Issues: Whether, in the facts and circumstances of the present case, the Appellate Tribunal was correct, in law, and justified in holding that the refund cannot be allowed under Rule 5 of the Cenvat Credit Rules, 2004? Whether in the facts and circumstances of the present case, Appellate Tribunal was correct, in law, and justified in holding that there is no provision for allowing refund of accumulated Cenvat credit on closure of the factory?
Ratio Decidendi: Rule 5 of the Cenvat Credit Rules, 2004 does not prohibit refund of CENVAT credit in case of closure of the manufacturing unit. The appellant was entitled to the refund as they had closed their factory and were unable to utilize the CENVAT credit. The Tribunal was bound by the High Court judgments and could not distinguish them without referring the matter back to the High Court.
Final Decision: The appeal was allowed, and the appellant was granted a refund of the CENVAT credit.
JUDGMENT
K.S. Jhaveri, J. - By way of this appeal, the appellant has challenged the judgment and order of Tribunal whereby the Tribunal has dismissed the appeal of the assessee.
2. This Court while admitting the appeal on 2-11-2017 framed the following substantial questions of law :
"(i) Whether, in the facts and circumstances of the present case, the Appellate Tribunal was correct, in law, and justified in holding that the refund cannot be allowed under Rule 5 of the Cenvat Credit Rules, 2004?
(ii) Whether in the facts and circumstances of the present case, Appellate Tribunal was correct, in law, and justified in holding that there is no provision for allowing refund of accumulated Cenvat credit on closure of the factory?"
3. The facts of the case are that appellant was manufacturing medicine, namely, Odoxin, which was governed by direct price control order.
3.1 A duty of 4% was paid on Odoxin whereas input credit utilized in manufacture of Odoxin suffered a duty of 10 per cent on local inputs and 14% on imported inputs. As a result, there was wide gap between Cenvat credit availed and duty paid on the final product.
3.2 The appellant was unable to utilize the Cenvat credit by paying the duty on final product resulting into a credit balance of Rs. 1,34,45,987/- lying in Cenvat credit.
3.3 The appellant closed their factory on 31-3-2011 and applied for cash refund of the Cenvat amount of Rs. 1,34,45,9877- lying in their Cenvat credit account.
3.4 The appellant's application for cash refund has been rejected by the Asst. Commissioner and Commissioner (Appeals).
4. In view of closure of the industry, the amount which was entitled for, counsel for appellant contended that the Tribunal has committed an error in rejecting the claim of the appellant.
5. Learned Counsel for appellant placed reliance on Union of India vs. Slovak India Trading Co. Pvt. Ltd. - 2006 TIOL 469 HC KAR CX = 2006 (201) E.L.T. 559 (Kar.), wherein it has been observed as under :
"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 of 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 that 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."
6. Against the aforesaid decision SLP was dismissed by the Supreme Court in Union of India vs. Slovak India Trading Co. Pvt. Ltd. - 2008 (223) E.L.T. A170 (S.C.) .
7. The same was subsequently followed by different High Courts.
He further relied upon following decisions :
1. Union of India vs. Slovak India Trading Co. Pvt. Ltd. - 2006 TIOL 469 HC KAR CX, wherein it has been observed as under :
1. The Union of India is before us raising the following questions of law in para 17 in the light of the order of the Tribunal dated 9-8-2005 passed in Excise Appeal No. 934/2004 on the file of the Customs, Excise and Service Tax Appellate Tribunal, Bangalore.
(a) Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no provision in Rule 5 of Cenvat Credit Rules 2002, to refund the unutilized credit?
(b) Whether under the facts and circumstances of the case the Tribunal is right in ordering for refund even if there is no production and there is no clearance of finished goods?
(c) Whether under the facts and circumstances of the case the Tribunal is right in holding that respondent is entitled for refund even if it goes out of Modvat Scheme or Company is closed?
"Rule 5. Refund of CENVAT Credit. - Where any inputs are used
