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2011 (5) TMI 111 - AT - Central ExciseRefund - Cenvat credit - Refund of unutilized credit due to unit becoming inoperative - Held that - Modvat law has codified procedure for adjustment of duty liability against Modvat Account - 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 as has been rightly pleaded by revenue and present reference is neither the case of otherwise due of the refund nor the case of exported goods. Similarly 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. - Decided against the assessee
The core legal question considered was whether an assessee, compelled to pay excise duty in cash through a PLA (Public Ledger Account) despite having sufficient unutilized Modvat credit, and whose factory had become inoperative with no prospect of resuming production, is entitled to a refund of the unutilized Modvat credit in cash under the law applicable during December 1997 to September 1999.
Another significant issue was the interpretation of the statutory provisions under the Central Excise Act, 1944, and the related Central Excise Rules, 1944 (particularly the Modvat scheme rules), regarding the permissibility of cash refunds of unutilized Modvat credit during the material period, and whether the absence of explicit refund provisions precludes such refunds. Additionally, the judgment examined the binding nature of earlier Tribunal decisions, the applicability of Rule 5 of the Central Excise Rules, 2002, and the relevance of judicial principles such as the doctrine of merger and the limits of equitable considerations in taxation law. Issue-wise Detailed Analysis 1. Entitlement to Cash Refund of Unutilized Modvat Credit When Duty Paid Through PLA Under Coercion or Otherwise Legal Framework and Precedents: The Modvat scheme, introduced from 1-3-1986 and governed by Rules 57A to 57J of the Central Excise Rules, 1944, allowed manufacturers to take credit of excise duty paid on inputs for payment of duty on final products. The scheme did not expressly provide for cash refunds of unutilized Modvat credit except in cases of export of goods. Earlier Tribunal decisions, including a Larger Bench ruling in Gauri Plasticulture (P.) Ltd., had permitted cash refunds under certain conditions, but without thorough examination of the statutory provisions. The Supreme Court's decision in Ichalkaranji Machine Centre (P.) Ltd. clarified that Modvat was a duty-collection procedure allowing relief on duty borne on inputs, emphasizing strict adherence to statutory provisions. Court's Interpretation and Reasoning: The Court noted that the Modvat credit was intended to be adjusted against duty liability on finished goods and that the law did not contain explicit provisions for cash refunds of unutilized credit during the relevant period. The Court emphasized that refund is a statutory right and cannot be granted without express legal sanction. It rejected the argument that Rule 5 of the Central Excise Rules, 2002, which permits refunds, was applicable to the period governed by the 1944 Rules, as the latter did not contain such provisions. The Court analyzed the Larger Bench decision in Gauri Plasticulture (P.) Ltd. and found that it was based on equitable considerations rather than statutory mandate, and that it did not address the fundamental legal question of whether the statute permitted such refunds. The Court held that equitable principles such as justice and good conscience are not applicable in fiscal statutes, which must be interpreted strictly according to their terms. Key Evidence and Findings: The assessee's claim that it was coerced into paying duty through PLA despite having Modvat credit was not supported by evidence. The Court noted that the refund claim was not "otherwise due" under the statute and that the Modvat credit remained unutilized because the unit had become inoperative. Application of Law to Facts: Since the statute and rules did not provide for cash refund of unutilized Modvat credit except in export cases, and there was no evidence of coercion compelling payment through PLA, the Court held that the assessee was not entitled to cash refund of the unutilized Modvat credit. Treatment of Competing Arguments: The assessee relied on judicial discipline to follow prior Tribunal decisions and on the applicability of Rule 5 of the 2002 Rules, as well as on Supreme Court affirmations of High Court decisions permitting refunds. The Court distinguished these decisions on the basis that they did not consider the statutory provisions governing the Modvat scheme during the relevant period. The revenue argued that absence of statutory provision for refund was decisive and that the Tribunal cannot act as a Court of equity to grant relief not authorized by law. The Court agreed with the revenue's submissions. Conclusion: Refund of unutilized Modvat credit in cash during the relevant period is not permissible unless expressly provided by law, which was not the case. The claim for refund was therefore rejected. 2. Interpretation of the Modvat Scheme and Relevant Statutory Provisions Legal Framework and Precedents: The Modvat scheme was governed by Rules 57A to 57J of the Central Excise Rules, 1944, with no express provision for cash refund of unutilized credit except in export cases. The Supreme Court in Ichalkaranji Machine Centre (P.) Ltd. held that Modvat is a duty-collection mechanism allowing input credit adjustment against output duty. The Court also considered principles of statutory interpretation from various Supreme Court precedents emphasizing strict construction of taxing statutes and rejection of equitable considerations in fiscal matters. Court's Interpretation and Reasoning: The Court underscored that refund is a statutory right and must be granted only if the statute expressly permits it. The principle that "what cannot be done directly should not be allowed to be done indirectly" was applied to reject attempts to circumvent the absence of refund provisions. The Court held that the absence of express refund provisions in the 1944 Rules implied a prohibition on cash refunds of unutilized Modvat credit. The Court further clarified that the exception for exports does not extend to cases of factory closure or cessation of production. Key Evidence and Findings: The Court reviewed the statutory scheme and found that the Modvat credit was intended for adjustment against duty on final products, and that unutilized credit was not refundable in cash unless the goods were exported. The Court also noted that the 2002 Rules, which contain refund provisions, were not applicable for the period under consideration. Application of Law to Facts: Given the statutory framework and the facts that the unit had ceased production and the credit was unutilized, the Court held that no refund was permissible. The Court rejected the contention that the absence of an express bar to refund implies entitlement, emphasizing that absence of a provision is not equivalent to permission. Treatment of Competing Arguments: The assessee's reliance on Rule 5 of the 2002 Rules and various judicial decisions was rejected as inapplicable to the period governed by the 1944 Rules. The revenue's argument that the Tribunal cannot grant refunds not authorized by law was accepted. Conclusion: The Modvat scheme does not permit cash refund of unutilized input credit except in export cases. The statutory scheme must be strictly followed. 3. Binding Nature of Earlier Tribunal Decisions and Doctrine of Merger Legal Framework and Precedents: The Court examined the doctrine of judicial discipline and the binding nature of Tribunal decisions, referencing the Supreme Court's explanation of the doctrine of merger in orders refusing special leave to appeal. The Court also considered the principle that dismissal of a special leave petition without reasons does not constitute a decision on merits and does not bar reconsideration of the issue. Court's Interpretation and Reasoning: The Court clarified that dismissal of Revenue's appeals in some cases without examination of the substantive issues does not preclude the revenue from challenging the correctness of Tribunal decisions in other cases. The doctrine of merger applies only when the Supreme Court exercises appellate jurisdiction after granting leave to appeal, not when special leave petitions are dismissed. Therefore, prior Tribunal decisions permitting cash refunds under equitable considerations do not bind the Court in the absence of statutory provisions. Key Evidence and Findings: The Court noted that the Larger Bench decision in Gauri Plasticulture (P.) Ltd. did not address the statutory provisions in detail and was based on equity rather than law. The Court found that the present reference was necessary to clarify the legal position. Application of Law to Facts: The Court held that the absence of statutory mandate for refund during the relevant period justified revisiting earlier decisions and that the revenue was entitled to contest the claims. Treatment of Competing Arguments: The assessee's reliance on judicial discipline to follow earlier Tribunal decisions was rejected as those decisions did not settle the legal question conclusively. The revenue's reliance on the doctrine of merger and the need for statutory sanction was accepted. Conclusion: Earlier Tribunal decisions based on equity do not bind the Court where statutory provisions do not authorize refund, and dismissal of special leave petitions does not bar reconsideration of the legal issues. 4. Principles of Interpretation of Taxing Statutes and Application to Refund Claims Legal Framework and Precedents: The Court reiterated established principles that taxing statutes must be strictly construed, equitable considerations are irrelevant in taxation matters, and courts cannot read into statutes provisions not expressly enacted. The Court cited multiple Supreme Court decisions emphasizing that refund claims must be grounded in statutory provisions. Court's Interpretation and Reasoning: The Court emphasized that refund is a matter of statutory right, not of equity or good conscience. It held that no person has a vested right in any procedural course unless conferred by law. The doctrine of substantial compliance was discussed, clarifying that it applies only where procedural or directory requirements are involved, not where substantive statutory mandates are absent. Key Evidence and Findings: The Court found no statutory provision permitting cash refund of unutilized Modvat credit in the relevant period except in export cases. The Court observed that the Modvat scheme was designed to allow adjustment of input credit against output duty and not for cash refunds. Application of Law to Facts: The Court applied these principles to reject the assessee's claim for cash refund, holding that the absence of statutory authorization was fatal to the claim. Treatment of Competing Arguments: The Court rejected the assessee's reliance on equitable principles and prior decisions not grounded in statutory provisions. The revenue's submission that refund claims must be strictly construed and supported by law was upheld. Conclusion: Refund claims under fiscal statutes require express statutory authority; equitable considerations cannot override statutory mandates. Significant Holdings "Refund is a statutory right and cannot be granted without express legal sanction." "The absence of express provision to grant refund of unutilized Modvat credit during the relevant period implies a prohibition on such refunds except in cases of export of goods." "Equity, justice and good conscience are guiding factors for Civil Courts; no fiscal Courts are governed by these concepts." "What cannot be done directly should not be allowed to be done indirectly." "Dismissal of a special leave petition without reasons does not constitute a decision on merits and does not bar reconsideration of the issue." "Taxing statutes must be strictly construed; courts cannot read into statutes provisions not expressly enacted." "No person has a vested right in any course of procedure unless conferred by law." "The doctrine of substantial compliance applies only to procedural or directory requirements and cannot be invoked to supply a substantive statutory deficiency." Final determinations:
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