Rule 5 of Cenvat Credit Rules, 2004 cannot be invoked to Sanction Refund of Utilized Cenvat Credit in Cash: CESTAT [Read Order]

In a recent case, the Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that Rule 5 of Cenvat Credit Rules, 2004 cannot be invoked to sanction refund of utilized Cenvat credit in cash.

The appellant, M/s Mahavir Metal Manufacturing Company was engaged in the manufacturing of umbrella/ umbrella parts and the duty structure was almost just half on the finished goods as compared to the imports in terms of Notification No. 12/2002-CE dated 17.03.2012. This resulted in the accumulation of central excise duty and the corresponding Cenvat credit for an amount of Rs. 42,17,938/-.

As such, a refund claim for the said amount of unutilized Cenvat credit was filed by the appellant on 15.04.2019 under Rule 5 of Cenvat Credit Rules, 2004. The appellant, on being enquired, had informed that their factory got closed in the financial year 20162017 and they had already applied to disconnect the power supply by their letter dated 19.04.2017 and 10.05.2017.

The supply was finally disconnected on 22.09.2017. The appellant also informed that they had migrated under GST, however, had not filed Trans-1 due to which the aforesaid amount of unutilized Cenvat credit could not be carried forward and was still lying in their books of account. 

 The Department served a show cause notice bearing No. 2302 dated 01.11.2019 upon the appellant proposing the rejection of the refund claim of accumulated Cenvat credit which was confirmed initially vide order-in-original No. 169/2020-21 dated 29.07.2020 on the ground that Rule 5 of Cenvat Credit Rules is not available for refund that too after the closure of the factory.

It was rejected also on the ground that after the post-introduction of the CGST Act, the appellant failed to transfer the closing balance of Cenvat credit through Trans-1 as was mandatory in terms of Section 140 of the Central Goods and Service Tax Act 2017. Section 11B of the Central Excise Act is also held not applicable to the given facts and circumstances.

 Further submitted that the timeline of Section 11B of Central Excise Act, 1944 has been wrongly considered despite that there has been catena of decisions holding that “relevant date” defined under Section 11B of Central Excise Act has no applicability to the refund of accumulated Cenvat credit sought under Rule 5 of Cenvat Credit Rules.

 It was evident that even Section 11B of the Central Excise Act is only for the refund of duty paid either through cash or through Cenvat credit or for the Cenvat credit wrongly reversed. Hence, this section cannot be invoked in a cash refund of the unutilized Cenvat credit lying in the Cenvat account of the manufacturer at the time of the closure of the factory.  

A single member Dr Ms Rachna Gupta, (Judicial) held that “the Adjudicating Authority has not committed any error while holding that Rule 5 of Cenvat Credit Rules, 2004 cannot be invoked to sanction the refund of unutilized Cenvat credit lying with the appellant much before April 2017 that too in cash as per Section 140 of CGST Act, 2017.” 

To Read the full text of the Order CLICK HERE

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