Credit Accumulated Due To Clearance Of Excisable Goods, Bar Of Unjust Enrichment Is Not Attracted: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has observed that the credit has been accumulated due to the clearance of excisable goods during the Excise Law Regime for export and that the bar of unjust enrichment is not attracted.

The bench of Anil Choudhary (a Judicial Member) found that the appellant had not begun production or manufacturing activities, nor had any taxable goods been cleared, on or after 1.7.2017. The debit recorded by the appellant in the electronic ledger (DRC-3) amounts to a reversal of credit transferred to the GST regime. The appellant is entitled to a refund under the provisions of Section 142(3) of the CGST Act, which provides that the assessee can file a refund claim on or after the appointed day for a refund of any amount of credit, duty, etc. paid under the existing law (Central Excise/Service Tax), subject to clearing the bar of unjust enrichment.

The appellant/assessee was a manufacturer of sheet metal components (drums) and was registered with the Central Excise Department. The appellant was availing of the facility of CENVAT credit of central excise duty on inputs and service tax on input services. As the appellant was mostly clearing their goods for export under a bond (Form ARE-3), cenvat credit was accumulated. The input credit had been declared in the return(s) filed before the department, which is not disputed. As of June 30, 2017, the appellant had a cenvat credit balance of Rs. 30,48,272 (including cess).

The appellant migrated to the GST regime and also filed Form TRAN-I for the transfer of the balance of credit. The transfer was allowed. Since the fiscal year 2014-2015, the appellant's factory has been closed for production. The appellant decided not to restart the production due to his advanced age, presently about 75 years.

The appellant debited the said amount of cenvat credit from its electronic ledger and applied for a refund on 18.03.2020 and 20.03.2020 under Rule 5 of the CCR read with Notification No. 27/2012. Pursuant to the filing of the refund claim, a deficiency-cum-show cause notice was issued.

All the refund claims were rejected on the ground that, in terms of Rule 5 read with Notification 27/2012 read with Section 11 B of the Central Excise Act, as made applicable in service tax matters vide Section 83 of the Finance Act, 1944, Being aggrieved, the appellant preferred appeal before the Commissioner (Appeals), who upheld the rejection of the refund claim, observing that the refund in question was not allowable as per the proviso to sub-Section 142(3) of the CGST Act as the credit was transferred to the GST regime.

The appellant has failed to file a refund claim under Notification No. 27/2012 within a period of one year, and the refund is barred by limitation read with Section 11B of the Central Excise Act. It was also observed that there is nothing on record to discern whether the goods were cleared for export. The appellant failed to produce the documents, like export documents, letters of undertaking, and proof of receipt of goods by the client or SEZ, with the refund claims. It was further held that the appellant had not cleared the bar of unjust enrichment for the grant of a refund. It was further observed that, as per the provisions of Section 142(3) of the CGST Act, no refund can be allowed of any amount of credit where the balance of the said amount as of the appointed day has been carried forward under the CGST Act.

The appellant urged that the appellant had a closing balance, which was carried forward by filing Form Tran-I. The amount had been accumulated as the appellant had supplied a major part of their finished goods to eligible SEZ/EOU units without properly completing CT-3 forms. During the GST regime, the appellant never began production. Due to the advanced age of the proprietor, he decided not to continue or restart the business and, accordingly, debited the said amount in the electronic ledger and filed a refund claim. The debiting of the amount claimed as a refund in the electronic ledger is not disputed.

The appellant urged that even under the GST regime under Section 54 of the CGST Act, the assessee is entitled to a refund of the accumulated credit under Section 49(6) of the CGST Act. The appellant has debited the amount of the refund claim in the Electronic Credit Register (DRC-03). Thus, the appellant is entitled to a refund in terms of Section 54 read with Section 49 read with Section 142(3) of the CGST Act.

The department contended that the refund was properly denied because, according to Transitory Provisions Section 142(3) of the CGST Act, a refund of the amount of credit that has been transited to the GST Regime under the provisions of the former Central Excise Act is not available. The appellant is also required to discharge the onus of unjust enrichment.

The CESTAT allowed the appeal and set aside the order. The adjudicating authority is directed to grant the refund within a period of 60 days from the date of receipt of a copy of the order, along with interest as per the rules.

Case Title: M/s.Nitin Industries (Trade Name) Versus Commissioner of Goods & Service Tax

Citation: Excise Appeal No.51616 of 2022-SM

Date: 24.11.2022

Counsel For Appellant: Advocate N.K. Sharma

Counsel For Respondent: Authorised Representative Divey Sethi

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