CESTAT: Rule 5 of Cenvat Credit Rules Cannot be Invoked in Cash Refund of Unutilized Cenvat credit

CESTAT: Rule 5 of Cenvat Credit Rules Cannot be Invoked in Cash Refund of Unutilized Cenvat credit

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Delhi, by its single member Dr. Rachna Gupta (Judicial Member) has observed that that Rule 5 of the Cenvat Credit Rules, 2004 cannot be invoked to sanction the refund of unutilized cenvat credit lying with the assessee.

In the present case, the appellant/assessee- M/s Mahavir Metal Manufacturing Company, was engaged in the manufacturing of umbrellas and umbrella parts, and the duty structure was almost just half on the finished goods as compared to the imports in terms of Notification No. 12/2002-CE dated 17 March, 2012.

This resulted in accumulation of central excise duty and the corresponding Cenvat credit for an amount of Rs. 42,17,938/-. As such, a refund claim for the said amount of unutilized Cenvat credit was filed by the appellant on 15.04.2019 under Rule 5 of Cenvat Credit Rules, 2004. The appellant, on being enquired, had informed that their factory got closed in the financial year 2016- 2017 and they had already applied to disconnect the power supply by their letter dated 19.04.2017 and 10.05.2017. The supply was finally disconnected on 22.09.2017. The appellant also informed that they had migrated under GST, however, had not filed Trans-1 due to which the aforesaid amount of unutilized Cenvat credit could not be carried forward and was still lying in their books of account.

Being unsatisfied with that response, the Department served a show cause notice dated 1 November, 2019 upon the appellant proposing the rejection of the refund claim of accumulated Cenvat credit. The said proposal was confirmed initially vide order-in-original No. 169/2020-21 dated 29 July, 2020 on the ground that Rule 5 of Cenvat Credit Rules is not available for the purpose of refund that too after the closure of the factory. It was rejected also on the ground that post introduction of CGST Act the appellant has failed to transfer the closing balance of Cenvat credit through Trans-1 as was mandatory in terms of Section 140 of CGST Act 2017. Section 11B of Central Excise Act was also held not applicable to the given facts and circumstances.

The Commissioner (Appeals) also affirmed, aggrieved by the same the appellant approached the CESTAT.

As per Rule 5 of the Cenvat Credit Rules, 2004 deals with the refund of cenvat credit. After the amendment, if the Cenvat credit could not be utilized for being considered towards payment of duty or service tax for any reason, the refund thereof is no longer possible.

The CESTAT noted that the appellant’s manufacturing unit got closed in financial year 2016-2017 and the Cenvat credit got accumulated due to the difference in duty on final products as compared to the imports. The refund was filed two years later.

In this regard, the CESTAT observed that the Rule 5 of Cenvat Credit Rules has undergone an amendment w.e.f. 1 April, 2012.

The CESTAT stated, “on perusal of this provision shows that the clause where for any reason such adjustment has not been possible of erstwhile Rule 5 stands deleted. This means that after the amendment, the Cenvat credit if it could not be utilized for being considered towards payment of duty/service tax for any reason the refund thereof is no more possible.”

The CESTAT elucidated that Rule 5 of the Cenvat credit permits cash refund of accumulated Cenvat credit only in the following circumstances:

1) The Cenvat credit which has accumulated and whose cash refund is sought is in respect of input/input service used in the manufacture of finished goods which have been exported out of India under bond or letter of undertaking or used in intermediate products cleared for export.

2) The assessee is not in a position to utilize the Cenvat credit for payment of duty on finished goods cleared for home consumption or cleared for export under rebate claim.

3) The exports have not been made by claiming draw-back or input duty rebate.

The Tribunal clarified that other than Rule 5 of Cenvat Credit Rules, there is no other provision either in Cenvat Credit Rules, 2004 or in Central Excise Rules, 2002 for giving cash refund of the accumulated Cenvat credit.

It was further clarified that even Section 11B of Central Excise Act is only for the refund of duty paid either through cash or through Cenvat credit or for the Cenvat credit wrongly reversed. Hence, this section cannot be invoked in cash refund of the unutilized Cenvat credit lying in the Cenvat account of the manufacturer at the time of closure of the factory, opined the CESTAT.

Averting to the present facts, the CESTAT held that none of the condition as enumerated above for invoking Rule 5 were satisfied.

Therefore, the Tribunal held that the Adjudicating Authority had not committed any error while holding that Rule 5 of the Cenvat Credit Rules, 2004 cannot be invoked to sanction the refund of unutilized Cenvat credit lying with the appellant much prior to April 2017, that too in cash as per Section 140 of the CGST Act, 2017.