Cash refund of unutilized credit impermissible on closure of business

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The Larger Bench (LB) of Bombay HC rules in favour of Revenue, holds that cash refund u/s 11B of the Central Excise Act, 1944 (“the Excise Act”) is not permissible when CENVAT Credit on inputs remains unutilized on account of closure of manufacturing unit or inability to utilize input credit.

Issues:

  • Whether cash refund is permissible in terms of clause (c) to the proviso to section 11B(2) of the Excise Act where an assessee is unable to utilize credit on inputs?
  • Whether by exercising power under Section 11B of the said Act of 1944, a refund of un-utilised amount of Cenvat Credit on account of the closure of manufacturing activities can be granted?
  • Whether what is observed in the order dated January 25, 2007 passed by the Apex Court in Petition for Special Leave to Appeal (Civil) No. CC 467 of 2007 (Union of India vs Slovak India Trading Company Pvt Ltd.) can be read as a declaration of law under Article 141 of the Constitution of India?

Facts & Background:

  • The appellant was engaged in manufacturing of resin PVC pipes and fittings. There was a dispute regarding the availability of small-scale industries exemption (“SSI”) under the Notification dated February 28, 1993.
  • A SCN was issued for recovery of dues on clearance of the pipes during the period of denial of this exemption. The order-in-original was passed confirming the demand and a penalty was also imposed. The exemption was denied on the ground that the appellant was manufacturing pipes bearing a mark “Jain Pipe” and that was a brand name.
  • An appeal was preferred to the Commissioner (Appeals) and he allowed the appeal holding that this cannot be considered as a brand name. In view of the order passed in appeal, an application for refund was made seeking refund, but a SCN was issued proposing to reject the refund claim of ₹ 8,41,043/- out of the total amount claimed on the ground that on surrender of registration certificate on September 8, 2000, the entire unutilised credit lapses and hence, subsequent reversal made was not permissible.
  • The Commissioner (Appeals) upheld the order-in-original on the ground that the appellant was not entitled to cash refund but was entitled to credit in CENVAT Account after the surrender of the registration certificate.

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