Can CENVAT Credit be refunded when unit is closed? - No Enrichment of State?
IT is the refrain of the Department that under no circumstance, the accumulated credit will be refunded in cash (export being an exception).
Recently, a Single Member Bench of the CESTAT allowed such a refund. 11 years ago, another single Member Bench in the Slovak India Trading case - 2005-TIOL-1698-CESTAT-BANG held, refund has to be made in cash when the assessee goes out of the Modvat scheme or when the company is closed.
The Revenue promptly took the matter in appeal to the High Court. The Karnataka High Court in - observed,
The Tribunal has chosen to allow the claim application on the ground that refund cannot be rejected when the assessee goes out of Modvat scheme or when the Company is closed.
The argument is that there is no provision for refund in terms of Rule 5 of Cenvat Credit Rules, 2002.
There is no express prohibition in terms of Rule 5. Even otherwise, it refers to a manufacturer as we see from Rule 5 itself. Admittedly, in the case on hand, there is no manufacture in the light of closure of the Company. Therefore, Rule 5 is not available for the purpose of rejection as rightly ruled by the Tribunal. The Tribunal has noticed that various case laws in which similar claims were allowed. The Tribunal, in our view, is fully justified in ordering refund particularly in the light of the closure of the factory and in the light of the assessee coming out of the Modvat Scheme.
The SLP by Revenue was dismissed by the Supreme Court on a concession made by the ASG.
Relying on this decision, recently the Chennai Bench of the Tribunal allowed the refund of accumulated Cenvat Credit. The Single Member observed,
Revenue is correct in its proposition that Rule 5 only takes care of the cases where unutilized input credit pertains to manufacture of exportable goods or intermediate goods cleared for export.
There is no rule at all to entertain refund of the unutilized CENVAT credit in respect of use of the input in the manufacture for domestic clearances. However, cases where assessees are not able to use the unutilized CENVAT credit due to closure of their business or any other circumstances beyond their control, law cannot be interpreted to cause absurdity or impossibility.
Therefore, when the credit is not questioned as ungenuine and there is no circumstance brought out by Revenue that there is a possibility to utilize the credit and also there being no law to carry forward such credit for future or to transfer the same to others, in such circumstance, it may be considered that the duty element paid by the assessee to the treasury shall serve no useful purpose of the taxpayer in the event of closure of the unit or impossibility of adjustment.
The State should not be enriched at the cost of the citizen.
Interestingly, the same Member writing a judgement for a Larger Bench on the same issue five years ago disallowed the refund. In a profound order, the Member (on behalf of the Larger Bench) then observed 2011-TIOL-656-CESTAT-DEL-LB.
EQUITABLE CONSIDERATIONS ARE ENTIRELY OUT OF PLACE WHILE INTERPRETING TAX LAWS: Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity.
POLICY OF REFUND OF INPUT CREDIT IS REGULATED BY STATUTORY PROVISIONS: An eligibility criteria to get refund calls for a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can be reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the "essence" or the "substance" of the requirements.
REFUNDS AND EXEMPTION ARE GOVERNED BY RULE OF STRICT COMPLIANCE: Fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non- compliance of directory requirements.
COURTS HAVE TO DECIDE WHAT THE LAW IS BUT NOT WHAT IT SHOULD BE: In a plethora of cases, it has been stated by various judicial pronouncements that where, the language is clear, the intention of the legislature is to be gathered from the language used. It is not the duty of the court either to enlarge the scope of legislation or the intention of the legislature, when the language of the provision is plain. The court cannot rewrite the legislation for the reason that it had no power to legislate.
He held, "Refund results in outflow from treasury, which needs sanction of law and an order of refund for such purpose is sine qua non. Law has only recognized the event of export of goods for refund of Modvat credit. Absence of express grant in statute does not imply ipso facto entitlement to refund. So also absence of express grant is an implied bar for refund. When right to refund does not accrue under law, claim thereof is inconceivable."
Though the Member did not use his own judgement, another Bench did. The Tribunal in , referred to the Larger Bench decision and rejected the refund claim.
Maybe the Larger Bench order was not brought to the notice of the Single Member.
Now, what is the legal Position?
Please see Breaking News for the latest Single Member Order.