CESTAT allows refund of unutilized CENVAT credit consequent to closure of business under Rule 5 of CCR, 2004

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Fact: M/s. International Engineering Agencies (“the appellant”) assessee engaged in the business of consultancy, commission agencies and other such related activities, filed a refund claim of service tax for the period April 2016 to September 2016, on July 25, 2017. On verification, the Revenue observed that the assessee was not eligible for the refund claim since according to the Asst. Commissioner, a refund of unutilized CENVAT credit as per Rule 5 of Cenvat Credit Rules, 2004 (CCR) read with (r/w) Section 11B of Central Excise Act, 1944 could be allowed only when CENVAT credit was related to services used for the export of services.

Appellants Interpretation of Law: The appellant replied to the SCN that the refund claim was made because they had wound up their business and dissolved their partnership firm and also surrendered the service tax registration. They further stated that the adjudicating authority misconstrued the claim of the assessee as a claim for refund of the debit of tax made in cash whereas, it had only claimed refund of unutilized CENVAT credit lying in balance consequent to closure of their business. The assessee relied on ratio of Karnataka HC in case of UOI Vs. Slovak India Trading Co. (P) Ltd. [2006 (201) ELT 559 (Kar.)]

Held: The Hon’ble CESTAT of Chennai vide its Appeal No. ST/42428/2018 dated January 30, 2019 stated that it was clear that Rule 5 facilitates refund of CENVAT credit not merely of the excisable goods exported and it was incorrect to say that Rule 5 provides for refund of un-utilized CENVAT only in the cases of export of service. CESTAT remarked that “accepting this interpretation of the Commissioner (Appeals) would lead to serious anomaly, which cannot be the intention of the legislation”.

CESTAT noted that, assessee has a huge credit which is now lying with the Revenue, has surrendered its Service Tax Registration and have also paid the service tax liability as on the last date of their business, CESTAT propounded that in such a situation, a bonafide assessee cannot be left remediless with his/its money in the form of credit struck with the Government. CESTAT drew support from Karnataka HC decision in the case of Slovak India Trading Co. Pvt. Ltd. which decision has been followed by various judicial for a across the nation.

Moreover, CESTAT observed that “when Article 265 of our Constitution mandates that no tax be impaled/ collected without the authority of law, it is incumbent upon the Revenue to justify even retention, when there is bonafide payment/credit”. CESTAT noted that there was no allegation or not even a whisper about unjust enrichment and after rejecting the assessee’s refund claim, same was retained without ordering deposit in Consumer Welfare Fund.

Citation: [ TS-49-CESTAT-2019-ST ]