Cenvat Credit Refund Can't Be Denied For Quoting Wrong Rule: CESTAT

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that refund of Cenvat credit cannot be taken away because the appellant had quoted the wrong rule in filing its refund claim.

The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that Cenvat credit was available to the appellant after the order of the Commissioner was passed in the remand proceedings. The appellant could have transitioned the credit under TRAN-I as ITC under GST. The appellant could also have claimed a refund of this amount under Rule 5 of the Cenvat Credit Rules, 2004 (CCR). However, since the department had agitated the matter before the High Court, the appellant waited for the order of the High Court and only thereafter filed the refund claim. The appellant should have filed a refund claim under Rule 5 of the CCR, but wrongly filed it under Rule 18 of the Central Goods and Service Tax Act, 2017 (CER).

The appellant/assessee was registered with the Central Excise Department and was a 100% Export Oriented Unit engaged in manufacture of welding machine tools/accessories. As an EOU, it was also registered as a private bonded warehouse under section 58 and 65 of the Customs Act, 1962.

The appellant exported goods under claim of rebate after clearing them under four ARE-1 dated 01.07.2008, 29.06.2007, 02.07.2007 and 30.06.2007. The rebate claim was allowed by the Jurisdictional Officers and thereafter it was felt that the rebate was erroneously sanctioned. At the insistence of the department, the appellant deposited the entire amount of rebate sanctioned to it along with interest.

The appellant informed the department that it intended to take credit of duty of Rs. 76,72,000/- against the goods exported through 36 invoices. The amount also included the amount which had earlier been sanctioned as rebate to the appellant and which was repaid by the appellant.

The Assistant Commissioner intimated the appellant that it cannot be allowed to take the aforesaid credit. However, the appellant took the credit, which was reflected in its returns. A show cause notice was issued to the appellant proposing to deny rebate and appropriate the amount which was already paid by the appellant towards the recovery of this rebate. It was proposed to disallow Cenvat credit and recover it Rule 14 of Cenvat Credit Rules, 2004 read with section 11A of the Central Excise Act, 1944 along with interest under section 11AB. It was also proposed to impose penalties under Rule 15/15A of CCR. The proposals confirmed by the Commissioner.

The order of the Tribunal was challenged by the department before High Court and by order dated 13.12.2017, the High Court upheld it. After considering the submissions made by the appellant, the Commissioner dropped the proceedings initiated by the SCN by order dated 21.03.2017. The order of the Commissioner order has been accepted by the department. Thus, the final decision was that the appellant was entitled to Cenvat credit of Rs. 76,72,000/-.

Meanwhile, the Central Excise Act has been superseded by Central Goods and Service Tax Act, 2017 in respect of most goods including those manufactured by the appellant. Therefore, the appellant's Cenvat credit of Rs. 76,72,000 could not be used. It, therefore, claimed refund of the amount in terms of section 11B of the CEA read with Rule 18 of Central Excise Rules, 2002 and section 142 (3) of CGST Act. The refund was sanctioned by the Assistant Commissioner by his order. The department appealed against this sanction of refund, which was set aside by the Commissioner (Appeals).

The assessee contended that the Commissioner (Appeals) passed the order failing to appreciate that rebate claims in respect of goods exported on payment of duty are maintainable under Rule 18 of the CER. The appellant had exported goods by filing rebate applications in prescribed format ARE-I. The goods were exported under claim of rebate on the advice of the Jurisdictional Officers and the Bond Officer under whose supervision the goods were removed from the factory. The appellant was working under physical control of the Jurisdictional Authorities being a 100% EOU and all ARE-1s indicate that the duty has been discharged under Rule 18. The goods exported on payment of duty rebate is admissible and there is no restriction on claim of rebate by a 100% EOU.

The department contended that the rebate of duty paid on export goods or duty paid on material used in the manufacture of exported goods is permissible under Rule 18 of CER, 2002. This rule does not allow refund of Cenvat credit which is governed by Rule 5 of the CCR. The appellant was not seeking refund of Cenvat credit under Rule 5 of CCR. The refund claim filed by the appellant was not a claim of refund of duty paid on the material used in the manufacture of export goods.

The tribunal while allowing the appeal held that the appellant was entitled for Cenvat credit of Rs. 76,72,000. Instead of claiming refund under Rule 5 of CCR, the appellant claimed it citing Rule 18 of CER. The Assistant Commissioner also wrongly sanctioned it quoting Rule 18 of CER. However, there cannot be any dispute about the fact that the appellant was entitled to refund of the amount under Rule 5 of CCR because it pertained to exports and the appellant was a 100% EOU.

Counsel For Appellant: Gaurav Gupta

Counsel For Respondent: Rakesh Agarwal

Case Title: M/s Welspring Universal Versus Commissioner of Central Tax Appeals – II, Delhi

Case No.: Excise Appeal No. 51000 Of 2020

Click Here To Read The Order