By TIOL News Service

NEW DELHI, MAR 23, 2017: THE appellant is an undertaking of the Govt. of Madhya Pradesh and is engaged in the production and distribution of electricity.

The appellant also undertakes the work of erection of towers for drawing transmission lines. For this purpose, they carried out the activities such as cutting, drilling, punching, bending, welding, assembling and painting etc. on duty paid iron and steel products such as angles, channels and plates etc.

The department took the view that such activities would amount to manufacture during the period March, 1995 to January, 1997, and, therefore, the appellant paid the Excise duty amounting to Rs.98,55,777/- Under Protest. Out of this,an amount Rs.35,25,514/- was paid in cash and the balance of Rs.63,30,263/- was paid by utilizing the modvat credit availed on the inputs.

The aforesaid activities undertaken by the appellant were held to be not amounting to ‘manufacture' by the Tribunal vide Final Order dated 16.07.2003. Consequent upon the decision of the Tribunal, the appellant received a refund of Rs.35,25,514/- in cash.

The present dispute is with reference to the refund claim of Rs.63,30,263/- paid by utilization of MODVAT/CENVATcredit. The refund claim for the above amount was rejected by both the authorities below for the reason that the said amount has been paid by making use of the modvat credit, which was accumulated when the activity undertaken by the appellant did not amount to manufacture and hence not liable to excise duty.

The appellant is before the CESTAT challenging this order.

The Tribunal observed –

+ The reason for rejection of such refund in the impugned order is that the appellant would not be eligible for taking the credit on inputs; once, it has been held that the final products are not liable to payment of Excise duty.

+ The stand taken in the impugned order is peculiar . The appellant was made to pay duty by taking the view that the final products are liable to Excise duty. For this purpose, the appellant was allowed to take modvat credit of duty paid on the inputs. This accumulated credit was in turn, used by the appellant to pay the duty on the final products. Once, it is held that the final products are not liable to excise duty, and the duty has been paid under protest, the excess paid Excise duty is required to be refunded to the appellant .

+ In the present case, it has been pleaded that the appellant no longer undertakes any activity requiring the payment of Excise duty. Consequently, no useful purpose will be served by allowing re-credit into the modvat credit account.

+ It is settled law that there is no prohibition under CEA, 1944 or the rules made there-under for cash refund of duty paid by utilization of Modvat/Cenvat credit. Section 11B of the CEA does not make any distinction between duty paid in cash and that by utilization of credit. In view of the fact that the appellant is not in a position to utilize the credit, the refund is to be paid in cash. [KocharSung-UP Acrylic Ltd. - 2010-TIOL-1822-CESTAT-DEL refers.]

The appeal was allowed by setting aside the impugned order.

(See 2017-TIOL-959-CESTAT-DEL)