Rule 5 Of Cenvat Credit Rules, 2004 Cannot Be Invoked To Sanction The Refund Of Unutilized Cenvat Credit Lying With The Assessee: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has observed that Rule 5 of the Cenvat Credit Rules, 2004 cannot be invoked to sanction the refund of unutilized cenvat credit lying with the assessee.

The bench of Rachna Gupta (Judicial Member) has observed that despite the fact that manufacturing was closed in the financial year 2016–2017 and the appellant had already moved on to the GST regime, the refund claim could not have been filed before April 16, 2017, i.e., more than two years after the closure of manufacturing activity.

The appellant/assessee 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 March 17, 2012.

It resulted in the 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 amount of unutilized Cenvat credit was filed by the appellant on April 15, 2019 under Rule 5 of the Cenvat Credit Rules, 2004.

The appellant informed that their factory got closed in the financial year 2016–2017, and they had already applied to disconnect the power supply by their letters dated April 19, 2017 and May 10, 2017. The supply was finally disconnected on October 22, 2017. The appellant also informed me that they had migrated under GST; however, they 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.

The Department served a show cause notice upon the appellant, proposing the rejection of the refund claim for accumulated Cenvat credit. The proposal was initially confirmed on the grounds that Rule 5 of the Cenvat Credit Rules does not allow for refunds after the factory's closure. It was rejected also on the ground that, post-introduction of the 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 the CGST Act 2017. Section 11B of the Central Excise Act is also held not to be applicable to the given facts and circumstances. The findings were confirmed by the Commissioner of Appeals.

The appellant contended that the refund had been wrongly rejected for want of Trans-1 under the GST regime. The timeline of Section 11B of the Central Excise Act, 1944, has been wrongly considered, despite the fact that there have been a multitude of decisions holding that the "relevant date" defined under Section 11B of the Central Excise Act has no applicability to the refund of accumulated Cenvat credit sought under Rule 5 of the Cenvat Credit Rules.

The department contended that the manufacturing unit closed in 2016–2017 itself, but admittedly, he did not surrender its service tax registration. However, the appellant opted to obtain the GST registration without even filing the Tran-1. Consequently, the unaccumulated Cenvat credit does not transfer to the GST regime. Hence, the question of invoking Section 140 of the CGST Act for the unaccumulated Cenvat credit does not at all arise.

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. It is also observed that Rule 5 of the Cenvat credit permits a cash refund of accumulated Cenvat credit only in a few circumstances.

The Tribunal has held that the Adjudicating Authority has 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.

Case Title: M/s Mahavir Metal Manufacturing Company Versus Commissioner (Appeals), Central Excise and CGST

Case No.: Excise Appeal No. 51200 Of 2022

Date: 03.05.2023

Counsel For Appellant: Mukti Bodh

Counsel For Respondent: V. Saharan

Click Here To Read The Order