By TIOL News Service

CHENNAI, MAY 20, 2016: THE appellant's contention is that the CENVAT credit remaining unutilized may be refunded under Rule 5 of the CENVAT Credit Rules, 2004 since the credit so remaining has no possibility of utilization in future, because of the closure of the unit. Appellant relied on the decision of the High Court of Karnataka reported in 2006-TIOL-469-HC-KAR-CX

Revenue contended that there is no rule prescribed to consider the case of refund of unutilized CENVAT credit where input credit does not relate to manufacture of exportable goods or intermediate cleared for export. Rule 5 confines its scope to permissibility of the refund only in respect of exportable goods. When the input credit is availed to manufacture goods for domestic clearance, unutilized CENVAT credit is not refundable in absence of any statutory provision in law.

After hearing both sides, the Tribunal held:

++ Revenue is correct in its proposition that Rule 5 only takes care of the cases where unutilized input credit pertains to manufacture of exportable goods or intermediate goods cleared for export. There is no rule at all to entertain refund of the unutilized CENVAT credit in respect of use of the input in the manufacture for domestic clearances. However, cases where assessees are not able to use the unutilized CENVAT credit due to closure of their business or any other circumstances beyond their control, law cannot be interpreted to cause absurdity or impossibility. With such interpretation, the Hon'ble High Court of Karnataka has allowed refund in the case of Union of India Vs. Slovak India Trading Co. P. Ltd. considering the fact that there was neither production nor clearance of finished goods due to closure of the company. The Court considered grant of relief on the premise that in absence of any prohibition in terms of Rule 5, refund is permissible. But, it may be stated that scope of Rule 5 is confined to exportable goods. That does not take care of the domestic clearances. Therefore, when the credit is not questioned as ungenuine and there is no circumstance brought out by Revenue that there is a possibility to utilize the credit and also there being no law to carry forward such credit for future or to transfer the same to others, in such circumstance, it may be considered that the duty element paid by the assessee to the treasury shall serve no useful purpose of the taxpayer in the event of closure of the unit or impossibility of adjustment. The State should not be enriched at the cost of the citizen in such circumstance as held in a number of judgments.

Accordingly, the Tribunal allowed the appeal.

(See 2016-TIOL-1203-CESTAT-MAD)