Accrued CENVAT Credit is a Statutory Right and cannot be denied without Clear Legal Provision: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit, once validly availed, is a statutory right and cannot be retrospectively taken away unless explicitly provided by law.

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Shri India Cotton Mills Pvt. Ltd., the appellant, is engaged in the manufacture of polyester yarn. The appellant opted for exemption under Notification No. 30/2004-CE from 13.03.2006 and subsequently filed a refund claim on 18.02.2014 for Rs. 29,51,234, representing unutilized CENVAT credit accumulated since July 2004, as reflected in their RG-23A registers and monthly ER-1 returns.

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The department issued a show cause notice on 26.05.2014 proposing to reject the refund, citing Rule 11(3) of the CENVAT Credit Rules, 2004, introduced via Notification No. 10/2007-CE effective from 01.03.2007. The original authority denied the refund, and this decision was upheld by the Commissioner (Appeals). Aggrieved by the rejection, the appellant filed an appeal before the CESTAT.

The appellant’s counsel argued that Rule 11(3) could not be applied retrospectively to deny credit that had accrued before its introduction. They argued that both the original and appellate authorities erred in applying Rule 11(3) to credit lawfully taken before 01.03.2007. The appellant relied on several judicial precedents, including Ramco International v. CCE, Ashima Ltd v. CCE & ST, Dai Ichi Karkaria Ltd, and Eicher Motors Ltd v. Union of India, to support the claim that vested rights to credit cannot be extinguished without express statutory authority.

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The revenue counsel argued that Rule 11(3) applies to all credit lying unutilized as on 01.03.2007, regardless of when it was availed. They argued that since the credit was still in the books on the effective date of the rule, it was subject to lapse under the amended provision.

The single-member bench comprising M. Ajit Kumar (Technical Member) held that CENVAT credit is a benefit that once validly accrued becomes an indefeasible right, unless explicitly withdrawn by law. The tribunal relied on the Supreme Court’s rulings in Eicher Motors and Dai Ichi Karkaria, observing that any credit lawfully earned under the existing rules cannot be denied by subsequent rules unless there is clear retrospective intent expressed in the statute.

The tribunal ruled that the amended Rule 11(3) cannot operate retrospectively to deny credit earned before its insertion. It held that the revenue’s attempt to apply the rule to past credits was legally unsustainable and violative of the principle that vested rights cannot be taken away without explicit legislative intent.

The tribunal set aside the impugned order and allowed the appeal, granting the appellant consequential relief as per law.

To Read the full text of the Order CLICK HERE

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