Refund of Unutilized Cenvat Credit on Closure of Factory Not Permissible: CESTAT Rejects Motonic India Automotive’s Appeal in Excise Dispute [Read Order]

The bench of the Customs, Excise and Service Tax Appellate Tribunal, Chennai, has ruled that refund of unutilized Cenvat credit is not permissible under the Central Excise Act, 1944 or the Cenvat Credit Rules, 2004 on account of closure of manufacturing operations. The Tribunal dismissed the appeal and upheld the rejection of the refund claim amounting to ₹18,74,68,939.

The Appellant, Motonic India Automotive Pvt. Ltd., a manufacturer of motor vehicle parts falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985, had ceased its manufacturing operations from 31 January 2015. At the time of closure, the company had an accumulated Cenvat credit balance of ₹18,74,68,939 on inputs, input services and capital goods. Since there was no possibility of utilising the accumulated credit, the company filed a refund application under Section 11B of the Central Excise Act, 1944.

The adjudicating authority rejected the refund claim through an Order-in-Original dated 30 March 2016, holding that there was no provision in law to sanction refund of accumulated Cenvat credit on closure of a unit.

The Commissioner of Appeals affirmed this decision through Order-in-Appeal dated 31 May 2017, leading the appellant to file the present appeal before the Tribunal.

The Appellant, represented by Hema Muralikrishnan, argued that the refund claim was permissible under clause (c) and alternatively under clause (d) of the proviso to Section 11B(2) of the Central Excise Act, 1944. It was submitted that there is no express provision in the Act or the Cenvat Credit Rules, 2004 that prohibits refund of unutilized credit on closure of a factory.

It was further contended that the accumulated credit was lawfully availed, that unjust enrichment did not apply since the incidence of duty was not passed on to customers, and a Chartered Accountant’s certificate was submitted as evidence. Reliance was placed on precedents including the Supreme Court’s decision on upholding that refund of unutilized Cenvat credit on closure of factory was allowed in Jain Vanguard Polybutylene Ltd.(2015).

The Revenue, represented by Anoop Singh, argued that Section 11B(2)(c) clearly requires refund to be in accordance with rules or notifications, and Rule 5 of the Cenvat Credit Rules, 2004 permits cash refund only in cases involving export. Since the appellant’s case was not related to export, the refund claim was not tenable.

It was further argued that the dismissal of the Special Leave Petition in Slovak India Trading Co. Pvt. Ltd. by the Supreme Court was based on concession and could not be considered binding precedent under Article 141 of the Constitution. Reliance was placed on precedents including the decision of the Bombay High Court in Gauri Plasticulture Pvt. Ltd.(2019), which categorically held that refund of accumulated credit is not permissible on closure of the factory.

The Tribunal, comprising Ajayan T.V., Judicial Member and M. Ajit Kumar, Technical Member, held that neither clause (c) nor clause (d) of the proviso to Section 11B(2) of the Central Excise Act, 1944, permits refund of unutilized Cenvat credit on account of closure of manufacturing operations. It ruled that Rule 5 of the Cenvat Credit Rules, 2004 allows cash refund only in cases of export of goods or services and does not extend to closure situations.

Accordingly, CESTAT upheld the decision of appellate authority rejecting the claim.

Consequently, the appeal was dismissed.

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