2025 (5) TMI 638 - AT - Central Excise

Refund of unutilized cenvat credit lying in its books of account upon closure of its factory - Section 11B(2)(c) or in the alternate Section 11B(2)(d) provides for refund of unutilized cenvat credit for the stated reason of closure of factory or not - cash refund of accumulated credit as per Rule 5 of the Cenvat Credit Rules 2004 - applicability of decision of the three-judge bench of the Bombay High Court in M/s. Gauri Plasticulture Pvt Ltd 2019 (6) TMI 820 - BOMBAY HIGH COURT or the Tribunal s decision in M/s. ATV Projects India Ltd 2023 (9) TMI 802 - CESTAT MUMBAI ? - rebuttal of presumption of unjust enrichment or not. Whether Section 11B(2)(c) or in the alternate Section 11B(2)(d) provides for refund of unutilized cenvat credit for the stated reason of closure of factory? - HELD THAT - The appellant s contention that clause (c) of the proviso to sub-section (2) of Section 11B would entitle the appellant to claim refund of unutilized cenvat credit lying in its cenvat account at the time of closure of appellant s factory as there is no express prohibition stated therein is misconceived. On the contrary as elucidated supra Section 11B itself is a provision that mandates that a refund claim is subject to the proof of not passing on the burden of duty to others and clause (c) of proviso to sub-section (2) which stipulates refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made or any notification issued under this Act when read with the said sub-section (2) and sub-section (1) of Section 11B would only necessarily mean that such refund of credit of duty paid on inputs/input services are governed by the Cenvat Credit Rules 2004 which has been notified vide notification No.23/2004-CE (NT) dated 10-09-2004 as amended in exercise of the powers conferred by section 37 of the Central Excise Act 1944 (1 of 1944) and section 94 of the Finance Act 1994 (32 of 1994) and govern the taking of credit of duty on inputs its utilization its refund etc being a self-contained scheme. Likewise the contention of the appellant that clause (d) of the proviso to sub-section (2) of Section 11B would entitle the appellant to claim refund of unutilized cenvat credit lying in its cenvat account at the time of closure of appellant s factory is also untenable. Given that clause (c) of the proviso to sub-section (2) of Section 11B already mentions refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made or any notification issued under this Act it is evident that clause (d) ibid can therefore only cover what is not a situation that would otherwise come under clause (c) ibid which makes it amply clear that clause (d) ibid when it stipulates inter-alia the duty of excise paid by the manufacturer if he had not passed on the incidence of such duty to any other person can then only be taken as referring to a situation where duty of excise has been paid on the goods manufactured by the manufacturer which if he is claiming refund ought to be that the incidence of which has not been passed on to any other person. Such is not the case here as the appellant is not claiming refund of duty on goods that have been manufactured by the appellant but the claim is for refund of accumulated cenvat credit on account of closure of appellant s factory - the said claim cannot come under the ambit of clause (d) ibid for the aforesaid reasons. Whether Rule 5 of the Cenvat Credit Rules 2004 provides for cash refund of accumulated credit? - HELD THAT - While Rule 5A and Rule 5B too provide for refund of cenvat credit in certain circumstances they have neither been relied upon nor are relevant for the issue under consideration. No doubt Rule 5 of the CCR too governs the refund of cenvat credit in the circumstances more specifically stipulated therein and the notification No.27/2012-CE (NT) issued under Rule 5 of the CCR specifies the conditions to be satisfied to seek refund of cenvat credit. A plain reading of the said Rule and the said notification and particularly the requirement in para 3(g) of the notification No.27/2012 ibid which stipulates that at the time of sanctioning the refund claim the Assistant Commissioner or Deputy Commissioner shall satisfy himself or herself in respect of the correctness of the claim and the fact that goods cleared for export or services provided have actually been exported leaves no room for any doubt that the refund under Rule 5 of CCR would arise only in respect of the unutilized cenvat credit accumulated in the course of engaging in export of goods and/or services. On the contrary the efforts have been to only submit that even otherwise there is no prohibition under Rule 5 for refund of accumulated cenvat credit on account of closure of factory. For the aforesaid reasons and for other reasons that are further elaborated infra it is held that the said contention of the appellant as wholly untenable and contrary to the statutory provisions governing refund of cenvat credit as provided in the self-contained CCR read with Section 11B of the CEA. Whether this Tribunal has to adhere to the Tribunal decision in M/s. ATV Projects India Ltd v CCE or whether this Tribunal has to adhere to the decision of the three Judge Bench of the Honourable High Court of Bombay in M/s. Gauri Plasticulture P Ltd v. the CCE Mumbai IV? - HELD THAT - It is observed that the decision in M/s. ATV Projects India Ltd. Vs Commissioner of Central Excise Service Tax Raigad post the decision of the full bench of the Bombay High Court in M/s. Gauri Plasticulture Pvt Ltd v. The Commissioner of Central Excise Indore though cognizant of the same has nonetheless chosen not to follow the said decision on the ground inter-alia that the judgment of Hon ble Supreme Court in Gangadhara Palo Vs. Revenue Divisional Officer 2011 (3) TMI 252 - SUPREME COURT wherein the decision of Kunhayammed and Others Vs. State of Kerala was further referred and clarified was not brought to the knowledge of the Hon ble Bombay High Court. To conclude that the Tribunal could differ with the jurisdictional High Court reliance was placed on the decision of the Larger Bench of the Tribunal in Mira Silk Mills Vs. Commissioner of Central Excise Mumbai 2003 (3) TMI 142 - CEGAT NEW DELHI and para 70 of the decision of the Tribunal in Atma Steels Pvt Ltd v CCE Chandigarh and others 1984 (6) TMI 60 - CEGAT NEW DELHI-LB . Thus in ATV Projects India Ltd 2023 (9) TMI 802 - CESTAT MUMBAI which incidentally is a decision consequent to a difference of opinion between the two members of the Tribunal sitting as a division bench as answered by a third member upon reference the Tribunal has gone on to hold that the decision of the Honourable Supreme Court in Slovak case 2007 (1) TMI 556 - SC ORDER was a binding precedent under Article 141 and had consequently allowed the appeal of the appellant therein holding that the appellant is entitled to cash refund of CENVAT credit available with it at the time of closure of the factory. In T.A. Quereshi v. Commissioner of Income Tax Bhopal 2006 (12) TMI 91 - SUPREME COURT the Honourable Apex Court was considering whether the heroin seized from a doctor manufacturing the same could be considered to be a business loss under S.254(2) of the Income Tax Act 1961. The assessee claimed that since heroin seized from him forms part of his stock in trade hence its loss on account of seizure is an allowable deduction while computing his profits and gains of business/profession. While the Tribunal held that the Assessee was entitled to claim the seizure as a business loss the High Court looked at explanation to S.37 of the IT Act 1961 which declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. A refund of unutilized CENVAT credit lying in the books of accounts of the assessee upon closure of the factory is not allowable to the Assessee under Section 11B and/or under Rule 5 of the CENVAT Credit Rules 2004 as these statutory provisions do not provide for the same. The interpretation of these provisions are not subject to equitable considerations. Even if the assessee is under severe financial stress or undergoing economic hardship such considerations are not grounds for grant of refund otherwise than as per mandate of statute. Rule 5 cannot be read to say that since there is no prohibition of cash refund of CENVAT credit such cash refund can be provided. This interpretation would then tantamount to stating something that is not expressed in the statute. From the mere absence of a prohibition it cannot be inferred the existence of a positive permissory norm especially in the context of statutorily mandated refund of taxes. Conclusion - i) Section 11B(2)(c) and (d) do not provide for refund of unutilized accumulated cenvat credit on closure of factory. ii) Rule 5 of the Cenvat Credit Rules 2004 allows refund only in cases of export and does not permit refund on closure of manufacturing operations. iii) The appellant failed to rebut the presumption of unjust enrichment due to lack of sufficient evidence regarding the treatment of inputs and capital goods at closure. Appeal dismissed.

Summary

The core legal questions considered in this appeal are: (1) Whether the appellant is entitled to refund of unutilized accumulated cenvat credit upon closure of its manufacturing operations under Section 11B(2)(c) or (d) of the Central Excise Act, 1944 (CEA); (2) Whether Rule 5 of the Cenvat Credit Rules, 2004 (CCR) provides for cash refund of accumulated credit in such circumstances; (3) Whether this Tribunal is bound to follow the decision of the three-judge bench of the Bombay High Court in M/s. Gauri Plasticulture Pvt Ltd or the Tribunal's decision in M/s. ATV Projects India Ltd; and (4) Whether the appellant has successfully rebutted the presumption of unjust enrichment.

Issue-wise Detailed Analysis:

1. Entitlement to Refund under Section 11B(2)(c) or (d) of the Central Excise Act

The relevant statutory provisions were examined in detail. Section 11B(1) requires any refund claim to be made within one year of the relevant date, in prescribed form, accompanied by documentary evidence including proof that the incidence of duty has not been passed on to any other person. Section 11B(2) stipulates that refund shall be granted only in specified cases enumerated in clauses (a) to (f) of the proviso, including clause (c) for refund of credit of duty paid on excisable goods used as inputs in accordance with rules or notifications, and clause (d) for refund of duty paid by the manufacturer if he has not passed on the incidence to any other person.

The Court interpreted clause (c) as allowing refund only in accordance with the Cenvat Credit Rules, 2004, which is a self-contained scheme governing credit, utilization, and refund. Clause (d) was interpreted as referring to refund of duty paid on manufactured goods where the manufacturer has not passed on the incidence of duty, which is distinct from refund of unutilized cenvat credit on inputs. The appellant's claim was for refund of accumulated cenvat credit due to closure of factory, not for duty on manufactured goods. Thus, the claim did not fall under clause (d).

The Court relied on the nine-judge Constitution Bench judgment in Mafatlal Industries Ltd v. Union of India, which emphasized that refund claims are subject to proof that the incidence of duty has not been passed on, and that refund is not an absolute right but conditional. The Court concluded that absence of an express provision in the statute for refund of accumulated cenvat credit on closure of factory precludes granting refund under Section 11B(2)(c) or (d).

2. Refund under Rule 5 of the Cenvat Credit Rules, 2004

Rule 5 of the CCR provides for refund of cenvat credit only in cases of export of final or intermediate products without payment of duty under bond or letter of undertaking. The appellant contended that Rule 5 does not expressly prohibit refund on closure of factory.

The Court examined Rule 5 and Notification No. 27/2012-CE(NT), which prescribe conditions for refund claims under Rule 5, including verification that goods cleared for export have actually been exported. The Court noted that the appellant's refund claim did not arise from export-related accumulated credit. The procedural safeguards and conditions under Rule 5 make it clear that refund is limited to export scenarios.

Further, the Court held that the CCR is a self-contained scheme regulating credit and refund, and Rule 5 cannot be read to allow refund of unutilized cenvat credit on closure of factory absent explicit provision. The appellant's contention that absence of prohibition implies permissibility was rejected as contrary to statutory interpretation principles governing taxing statutes.

3. Binding Precedent: Tribunal's ATV Projects Decision vs. Bombay High Court's Gauri Plasticulture Decision

The appellant relied on the Tribunal's decision in M/s. ATV Projects India Ltd, which held that the Supreme Court's order in Slovak India Trading Co. Pvt. Ltd. was a binding precedent under Article 141 of the Constitution, entitling refund of unutilized cenvat credit on closure of factory. The appellant urged this Tribunal to follow ATV Projects as a larger bench decision.

The department relied on the three-judge bench decision of the Bombay High Court in M/s. Gauri Plasticulture Pvt Ltd, which specifically examined whether the Supreme Court's order in Slovak India Trading Co. could be read as a binding precedent under Article 141 and answered in the negative. The High Court held that Slovak was a dismissal based on a concession and did not constitute a declaration of law binding on all courts. It further held that refund under Rule 5 is permissible only in export cases and not on closure of factory.

The Court undertook a comprehensive analysis of the doctrine of binding precedent, ratio decidendi, obiter dicta, and judicial discipline, referencing recent Supreme Court jurisprudence. It emphasized that only the ratio decidendi of a judgment is binding, and decisions based on concessions or non-speaking orders dismissing special leave petitions do not constitute binding precedents under Article 141.

The Court further explained the doctrine of merger and the difference between decision-making and precedent-making judgments. It noted that the Supreme Court in Slovak dismissed the special leave petition based on a concession without adjudicating the substantive question of law, leaving the question open.

In light of the binding precedents, including the larger bench decisions of the Tribunal and the Supreme Court, the Court held that the Tribunal cannot disregard the binding decision of the jurisdictional High Court. The Court found the ATV Projects decision to have overlooked the binding precedents and judicial discipline principles and held that the three-judge bench decision in Gauri Plasticulture is binding on this Tribunal.

4. Rebuttal of Presumption of Unjust Enrichment

Section 12B of the CEA presumes that the incidence of duty has been passed on to the buyer unless the contrary is proved. The appellant submitted a Chartered Accountant certificate asserting absence of unjust enrichment.

The Court noted that the certificate did not explain the reason for accumulation of credit nor the disposal of inputs or capital goods at the time of closure. The Court relied on the Supreme Court's decision in Commissioner of Central Excise, Chennai-III v. Grasim Industries, which held that the principle of unjust enrichment applies even to captive consumption and includes capital goods used in costing.

The Court held that without clear evidence on the nature of inputs and capital goods at closure and their treatment, the appellant failed to rebut the presumption of unjust enrichment.

5. Interpretation of Taxing Statutes and Policy Considerations

The Court reiterated the well-settled principle that taxing statutes must be strictly construed based on clear expressions in the statute. Equitable considerations, hardship, or moral views cannot be imported to supply deficiencies or extend benefits not expressly provided by law.

The Court cited the larger bench decision in Steel Strips v. CCE, which held that refund of unutilized credit on closure of factory is not permissible absent explicit statutory provision and that absence of prohibition does not imply a positive right to refund.

The Court emphasized that refund claims are not matters of right but depend on statutory mandate and conditions, including strict adherence to procedural requirements and proof against unjust enrichment.

Conclusions:

The Court concluded that:

• Section 11B(2)(c) and (d) do not provide for refund of unutilized accumulated cenvat credit on closure of factory.
• Rule 5 of the Cenvat Credit Rules, 2004 allows refund only in cases of export and does not permit refund on closure of manufacturing operations.
• The Supreme Court's order in Slovak India Trading Co. Pvt. Ltd. is not a binding precedent under Article 141 as it was a dismissal based on concession; thus, the Tribunal must follow the binding decision of the jurisdictional Bombay High Court in Gauri Plasticulture.
• The appellant failed to rebut the presumption of unjust enrichment due to lack of sufficient evidence regarding the treatment of inputs and capital goods at closure.
• Taxing statutes must be strictly construed, and equitable considerations cannot override clear statutory provisions.

Accordingly, the appeal was dismissed as devoid of merits, upholding the rejection of the refund claim.

Significant Holdings:

"Section 11B itself is a provision that mandates that a refund claim is subject to the proof of not passing on the burden of duty to others and clause (c) of proviso to sub-section (2) which stipulates 'refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act', when read with the said sub-section (2) and sub-section (1) of Section 11B, would only necessarily mean that such refund of credit of duty paid on inputs/input services are governed by the Cenvat Credit Rules, 2004 ... being a self-contained scheme."

"Refund of CENVAT credit in terms of Rule 5 is permissible only when there is a clearance of a final product of a manufacturer or of an intermediate product for export without payment of duty under a bond or letter of undertaking ... The refund under Rule 5 of CCR would arise only in respect of the unutilized cenvat credit accumulated in the course of engaging in export of goods and/or services."

"A decision is binding not because of its conclusion but with regard to its ratio and the principle laid down therein ... The only thing in a judge's decision binding a party is the principle upon which the case is decided ... A decision based on a concession cannot be considered a binding precedent."

"Taxing statutes are not subject to equitable considerations. One must interpret a taxing statute in the light of what is clearly expressed. The statute cannot import provisions so as to supply any assumed deficiency."

"The doctrine of unjust enrichment is a salutary doctrine. No person can seek to collect the duty from both ends ... The power of the Court is not meant to be exercised for unjustly enriching a person."

"In the absence of express provision to grant refund, that is difficult to entertain except in the case of export ... Absence of express grant is an implied bar for refund."