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ST – Credit lying unutilized upon closure of business – Law cannot lead to a situation where a bona fide taxpayer’s amount could be denied and withheld, for no fault of his: CESTAT

2019-TIOL-2190-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
COURT SM – B3

Appeal No. ST/42428/2018

Arising out of Order-in-Appeal No. 524/2018 (CTA-I), Dated: 28.09.2018
Passed by the Commissioner of GST and Central Excise (Appeals-I), Chennai

Date of Hearing: 30.01.2019
Date of Decision: 30.01.2019

M/s INTERNATIONAL ENGINEERING AGENCIES

Vs

COMMISSIONER OF GST AND CENTRAL EXCISE
(CHENNAI NORTH COMMISSIONERATE)

Appellant Rep by: Shri P Ravindran, Adv.
Respondent Rep by: Shri L Nandakumar, AC (AR)

CORAM: P Dinesha, Member (J)

ST – Rule 5 of CCR – Refund claim made by appellant of balance lying unutilized in their cenvat account at the time of closure of business was rejected on the ground that the same could be allowed only when the cenvat credit was related to services used for the export of services – appeal to CESTAT.

Held: Term “Total turnover” used in the above formula in rule 5 of CCR includes the sum total value of all excisable goods cleared during the relevant period and it doesn’t restrict the inclusion of value of the excisable goods exported, per se – Rule 5 facilitates the refund of Cenvat credit not merely of the excisable goods exported and, therefore, to say that Rule 5 provides for refund of un-utilized Cenvat only in the cases of export of service is incorrect – accepting the interpretation of the Commissioner (Appeals) would lead to serious anomaly, which cannot be the intention of the legislation – law cannot lead to a situation where a bonafide tax payer’s amount could be denied and withheld, for no fault of his – a bonafide assessee cannot be left remediless with his/its money in the form of credit stuck with the Government – when Article 265 of Constitution mandates that no tax be collected without the authority of law, it is incumbent upon the Revenue to justify even retention, when there is bonafide payment/credit – In this case, there is no allegation or not even a whisper about unjust enrichment – after rejecting appellant’s refund claim, apparently the same is retained without ordering deposit into Consumer Welfare Fund – It is clear that, therefore, both rejection and retention become contrary to the provisions of the statute – Bench is of the considered view that the appellant’s claim for refund is in order for which reason, the impugned order is set aside – Appeal is allowed with consequential benefits: CESTAT [para 4.2, 5]

Appeal allowed

Case laws cited:

UOI Vs. Slovak India Trading Co. (P) Ltd. – 2006-TIOL-469-HC-KAR-CX… Para 1

Steel Strips Vs. CCE, Ludhiana -2012 (26) STR 27 (Tri.LB)… Para 1

M/s. Nissan Motor India Pvt. Ltd. Vs. CCE, Chennai – 2018-TIOL-3255-CESTAT-MAD… Para 2

M/s. Srinivasa Hair Industries Vs. CCE, Chennai – 2016-TIOL-1203-CESTAT-MAD… Para 2

Delta Power Solutions India Pvt. Ltd. Vs. CCE, Pondy – 2017-TIOL-1090-CESTAT-MAD… Para 2

Computer Graphics Ltd. Vs. CCE, Tirunelveli 2016 (8) TMI – Cestat Chennai… Para 2

Welcure Drugs & Pharmaceuticals Ltd. Vs. CCE,Jaipur – 2018-TIOL-380-HC-RAJ-CX… Para 2

FINAL ORDER NO. 40276/2019

Per: P Dinesha:

The appellants, engaged in the business of consultancy, commission agencies and other such related activities, filed a refund claim of service tax for the period April, 2016 to September, 2016, on 25.07.2017. On verification of the refund claim, it came to the notice of the department that the appellants are not eligible for the refund claim since, according to the Asst. Commissioner, as per Rule 5 of Cenvat Credit Rules, 2004 read with Section 11B of Central Excise Act, 1944, a refund of unutilized cenvat credit could be allowed only when the cenvat credit was related to services used for the export of services. A Show cause notice dated 21.11.2017 was thus issued proposing rejection of refund claim as they are not eligible for the refund of balance lying unutilized in their cenvat account at the time of closure of business. The appellant vide reply dated 03.01.2018 to the SCN replied that the refund claim was made because they had wound up their business and dissolved their partnership firm on 02.11.2016; had surrendered the service tax registration also on the same date; that they had also paid the service tax liability for the month of July, 2016 through cash as the input tax credit to the extent of Rs. 37,70,000/- which was available to them only in August, 2016; that since it was not able to adjust the same against any future service tax liability on account of closure of its business operations, their claim for refund being in order, requested for the same. They also relied on the ratio of the Hon’ble High Court of Karnataka in the case of UOI Vs. Slovak India Trading Co. (P) Ltd. – 2006 (201) ELT 559 (Kar.) = 2006-TIOL-469-HC-KAR-CX to the effect that in the light of closure of the company, sanction of refund was fully justified since the assessee came out of the modvat scheme. It is also submitted that the above decision of the Hon’ble High Court was confirmed by the Hon’ble Apex Court. On adjudication, the Asst. Commissioner, however, rejected the refund claim by relying on a Larger Bench decision of the Tribunal in the case of Steel Strips Vs. CCE, Ludhiana -2012 (26) STR 27 (Tri.LB), to hold that granting of cash refund would be against the principles of Cenvat Scheme and CCR, with a particular reference to Rule 5 of CCR, which provided only for refund in the case of excess credit remaining surplus on the only solitary account of export and not in any case of balance of cenvat credit lying unutilized and unusable consequent to closure of business. On appeal, the Commissioner (Appeals) upheld the order of the adjudicating authority. Hence, this appeal.

2. Ld. Counsel, Shri P. Ravindran, appeared for the assessee and submitted that such refund claim has been allowed by a catena of judicial pronouncements and such case laws on which reliance was placed were produced before both the lower authorities. The adjudicating authority had mis-construed the claim of the appellants as a claim for refund of the debit of tax made in cash whereas, the appellants had only claimed refund of unutilized cenvat credit lying in balance consequent to closure of their business. He submitted that both the authorities have failed to consider the dictum laid down in those judicial pronouncements where judgment in Slovak India Trading Co. Pvt. Ltd. (supra) was followed and allowed such refund claims. He also placed reliance on the following case laws in support of his contentions:-

1. M/s. Nissan Motor India Pvt. Ltd. Vs. CCE, Chennai 2018 (6) TMI 637 – Cestat Chennai = 2018-TIOL-3255-CESTAT-MAD

2. M/s. Srinivasa Hair Industries Vs. CCE, Chennai 2016 (6) TMI 673 – Cestat Chennai = 2016-TIOL-1203-CESTAT-MAD

3. Delta Power Solutions India Pvt. Ltd. Vs. CCE, Pondy 2017 (3) TMI 849 – Cestat, Chennai = 2017-TIOL-1090-CESTAT-MAD

4. Computer Graphics Ltd. Vs. CCE, Tirunelveli 2016 (8) TMI – Cestat Chennai

5. Welcure Drugs & Pharmaceuticals Ltd. Vs. CCE,Jaipur 2018 (15) GSTL 257 (Raj.) = 2018-TIOL-380-HC-RAJ-CX

3. Per contra, Ld. DR, Shri L. Nandakumar, AC, supported the findings of the lower authorities.

4.1 I have considered the rival submissions and gone through the number of case laws relied on during the hearing. Rule 5 of the Cenvat Credit Rules, 2004 (CCR) reads 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 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.”

4.2 Rule 5 of Cenvat Credit Rules, 2004 facilitates refund of credit, to be worked out in the manner provided in the formula prescribed, under sub-rule (1). The formula reads as under:

Refund Amount(Export turnover of Goods + Export
———————- x Net Cenvat credit
Turnover of services) 
Total turnover

The term “Total turnover” used in the above formula includes the sum total value of all excisable goods cleared during the relevant period. It doesn’t restrict the inclusion of value of the excisable goods exported, per se. Sub-rule (2) deals with a situation where duty drawback is allowed and further lays down that in such a situation, credit could not be refunded. Therefore, it is clear from the above that Rule 5 facilitates the refund of Cenvat credit not merely of the excisable goods exported and therefore to say that Rule 5 provides for refund of un-utilized Cenvat only in the cases of export of service is incorrect. Thus, I am of the view that accepting this interpretation of the Commissioner (Appeals) would lead to serious anomaly, which cannot be the intention of the legislation. Admittedly, the appellant has a huge credit which is now lying with the Revenue; the appellant has surrendered its Service Tax Registration and they have also paid the service tax liability as on the last date of their business. The law cannot, therefore, lead to a situation where a bonafide tax payer’s amount could be denied and withheld, for no fault of his. Further, in such a situation a bonafide assessee cannot be left remediless with his/its money in the form of credit struck with the Government. My view as above is also supported by the decision of the Hon’ble High Court of Karnataka in the case of Slovak India Trading Co. Pvt. Ltd. (supra), which decision has been followed by various judicial fora across the nation.

5. Further, when Article 265 of our Constitution mandates that no tax be impaled/ collected without the authority of law, it is incumbent upon the Revenue to justify even retention, when there is bonafide payment/credit. In this case, there is no allegation or not even a whisper about unjust enrichment: after rejecting appellant’s refund claim, apparently the same is retained without ordering deposit into Consumer Welfare Fund. It is clear that therefore both rejection and retention become contrary to the provisions of the statute. For the above reasons, I am of the considered view that the appellant’s claim for refund is in order for which reason, I set aside the impugned order. Appeal is therefore allowed with consequential benefits, if any, as per law.

(Operative part of the Order pronounced in the open Court)

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