By TIOL News Service

CHENNAI, JULY 14, 2017: WHILE partly allowing the appeals of the assessee and the Revenue, the CESTAT had held thus -

CX - Assessee filed refund claim of Rs.30,60,023/- - Deputy CCE in his order dt. 21.11.2008 had sanctioned refund of predeposit of Rs.10 lakhs (paid through cenvat credit) in cash and rejected amount of Rs.20,60,023/- voluntarily paid by them - Revenue relied on Rule 11(3) which came into force w.e.f. 1.3.2.007 vide Notfn 10/07 CE (NT) - Assessee opted for exemption under Notfn 30/04 which exempted the goods from whole of excise duty - Case relates to period prior to 9.7.2004 and amendment to Rule 11 was inserted only from 1.3.2007 - Said amendment cannot have any retrospective effect for earlier period - Therefore, in absence of any specific provision in said notfn or any other provision prior to 1.3.2007, there is no lapse of credit and sub-rule(3) cannot be applied retrospectively for period prior to 9.7.2004 - Said Notfn is a conditional one and cannot be considered as absolute exemption and Clause(ii) of sub rule(3) of Rule 11 is applicable only if final product is exempted absolutely - Accordingly, assessee have rightly utilized the credit for payment of predeposit of Rs.10 lakhs as per Tribunals interim order and voluntarily paid Rs.20,60,023/- through cenvat account towards the demand - Assessee neither closed their unit nor their registration is cancelled and they are fully viable and functioning and producing Denim fabrics and clearing for domestic as well as for exports and also discharging ST liabilities - Therefore, by following decision in case of Steel Strips - 2011-TIOL-656-CESTAT-DEL-LB it is held that predeposit amount of Rs.10 lakhs and Rs.20,63,023/- voluntarily paid cannot be allowed by way of cash refund and said refund is to be allowed by way of re-credit in cenvat account - Both the assessee's and Revenue's appeal are partly allowed and refund amount of Rs.30,60,023/- is allowed by way of recredit in cenvat credit account and not by cash refund: CESTAT.

We reported this case as = 2015-TIOL-1433-CESTAT-MAD .

Aggrieved, the assessee is before the Madras High Court.

The following questions of law were framed for consideration -

"1) Whether the Hon'ble CESTAT is correct in directing the consequential refund under Section 11B of the amount paid by the appellant, to be credited to the CENVAT Credit account, in the absence of any provision in the said Section for such re-credit?

2) Whether the Tribunal was right in treating an application for refund of the credit of the duty already utilized to pay the demand issued under Section 11A, as if it is an unutilized credit."

A demand of Rs.32,40,810/- was confirmed by the adjudicating authority and upheld by the Commissioner(A). The Tribunal vide order dated 11.3.2005 granted an interim stay on condition of pre-deposit of a sum of Rs.10,00,000/- towards the demand.

The Assessee complied with the interim order by debiting the CENVAT account on 15.3.2005 and this was not objected by the Revenue.

Later, the Assessee, suo motu made a further payment of a sum of Rs.20,60,023/- by debiting its CENVAT credit account on 15.3.2007 and this was done while the appeal was still pending before the Tribunal.

By its Order dated 08.10.2007, the Tribunal set aside the demand on the ground that it was barred by limitation.

Consequently, the Assessee filed a claim for refund Rs.30,60,023/-.

The DC issued a show cause notice proposing to reject the refund claim of Rs.20,60,023/- paid suo motu and cited the provisions of Rule 11(3)(i)/(ii) of CCR, 2004 as amended by Notfn. No. 10/2007- CE(NT) dated 1.3.2007.

This sub-rule reads -

(3) A manufacturer or producer of a final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if,-

(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or

(ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.

Incidentally, the Dy. Commr. by order dated 21.11.2008 sanctioned the refund in cash to the extent of Rs.10,00,000/-which was deposited pursuant to the pre-deposit ordered by CESTAT and by the very same order rejected the assessee's claim for refund of the balance amount i.e., 20,60,023/-.

The Commissioner(A) upheld this order and, therefore, an appeal came to be filed by the assessee and the Revenue and the CESTAT held as extracted at the outset.

Suffice to say that the Tribunal partly allowed the appeals of both the Assessee and the Revenue and, furthermore, directed that the refund of the sum of Rs.30,60,023/- should be allowed by re-crediting the said amount to the CENVAT Credit Account.

In this background, appeal came to be filed by the assessee before the Madras High Court.

The assessee submitted that the authorities below misdirected themselves by concentrating upon Rule 5 of 2004 Rules; that the claim had to be processed under Section 11(B)(2)(c) of the CE Act, 1944; that the refund is admissible in cash in view of the following settled case laws -

-  CCE VS. ASHOK ARC = 2005-TIOL-208-HC-RANCHI-CX

-  UOI VS. SLOVAK INDIA TRADING CO. PVT. LTD. = 2006-TIOL-469-HC-KAR-CX

-  RAYMOND LTD VS. CCE, M-III = 2011-TIOL-1360-CESTAT-MUM

The counsel for the Revenue submitted that since duty had been paid by the assessee by debiting the CENVAT credit account, refund of the same could be made only by re-crediting the account as was held by the Tribunal; that Rule 5 of CCR is not applicable as the final products were not exported; that refund in cash is not admissible in view of LB decision in STEEL STRIPS VS. CCE = 2011-TIOL-656-CESTAT-DEL-LB .

After considering the submissions, the High Court observed -

"12.2. The learned counsel for the Assessee has, correctly, argued that the Assessee would fall under clause (c) of Section 11 B of the CE Act…

12.3. There is no dispute that excisable inputs such as yarn was used in the manufacture of the final product i.e., fabric. The amount paid as a condition of interim stay imposed by the Tribunal in the earlier round vide order dated 11.3.2005 was credited to the Revenue by debiting the CENVAT Credit Account. The sum credited at that stage was an amount equivalent to Rs.10,00,000/-. Similarly, on 15.3.2007, another sum of Rs, 20,60,023/- was credited in favour of the Revenue by debiting the CENVAT credit account.

13. Therefore, in our view, there is no impediment in the said amount being refunded to the Assessee by way of cash, contrary to what the Tribunal has indicated. This is the only viable and practical approach which can be adopted in the instant case as the Revenue does not dispute the fact that the final product manufactured by the assessee which is fabric, is no longer amenable to excise duty. In these circumstances, quite obviously, the re-credit of duty as ordered by the Tribunal via impugned Judgment or Order will not serve any purpose insofar as the Assessee is concerned."

Placing reliance on the Jharkhand High Court decision in the case of CCE Vs. ASHOK ARC (supra), the impugned judgment of the Tribunal was set aside and the appeals were allowed.

In passing: The Ashok Arc case -

Question raised by Revenue for reference under Section 35 H(1) of the CEA, 1944 -

"Whether the learned Tribunal has gravely erred in allowing the Appeal and directing the authority to refund the pre-deposit amount in cash when the same has been deposited through RG 23A Pt. - II i.e. MODVAT account and under the provisions of Central Excise Rules, 1944 no such refund in cash is permissible?"

The High Court inter alia held -

"…as noticed by the CEGA Tribunal and, in fact, no credit account is being maintained by the respondent on account of raising of exemption limit. As the respondent will not be in a position to utilize the credit, the CEGA Tribunal has rightly held that the Revenue should refund the amount to the respondent in cash. There being no substantial question of law, raised for reference, we are not inclined to ask the Tribunal to refer any issue."

(See 2017-TIOL-1293-HC-MAD-CX)