CESTAT Denies Refund of Unutilised CENVAT Credit under Rule 5 on Factory Closure After 2012 Amendment [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has dismissed an appeal seeking refund of unutilised CENVAT credit, holding that there is no statutory provision allowing refund of accumulated credit on closure of a manufacturing unit after the amendment of Rule 5 of the CENVAT Credit Rules, 2004 w.e.f. April 1, 2012.

The appeal was filed by M/s Mann Feeds Pvt. Ltd., engaged in the manufacture of diapers on behalf of another company by installing separate machinery. Upon expiry of contract, the manufacturing activity was discontinued in September 2014. After which, the assessee filed a refund claim for the balance CENVAT credit lying in its books.

The refund claim was rejected by the original authority on the ground that there was no provision under the Central Excise law allowing refund of unutilised CENVAT credit on account of closure of a unit. The rejection was upheld by the appellate authority, leading to the present appeal before the Tribunal

The appellant argued that Section 11B(2)(c) of the Central Excise Act, 1944 permitted refund of credit and relied on several judicial precedents, including decisions of High Courts and Tribunals. It was also argued that the authorities had gone beyond the show cause notice while rejecting the refund claim.

The Revenue opposed the appeal, submitting that after the amendment to Rule 5 of the CENVAT Credit Rules with effect from April 1, 2012, refund of unutilised credit is permissible only in cases of export of goods or services. The department also pointed out that the appellant had continued to utilise CENVAT credit even after filing the refund claim.

The Tribunal, comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), held that Rule 5, as amended from April 1, 2012, restricts refund of CENVAT credit only to export-related situations. It was further noted that most of the judgments relied upon by the appellant related to a period prior to the amendment of Rule 5.

The Bench rejected the contention that the adjudicating authorities exceeded the scope of the show cause notice on the ground that the proposal for rejection was clearly based on Rule 5 read with Section 11B of the Act.

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