2025 (5) TMI 1527 - AT - Central Excise

Entitlement to cash refund of unutilized Cenvat credit under the erstwhile Central Excise regime and its transitional treatment under the GST regime - discontinuation of certain production activities - period of limitation prescribed provided under Section 118 of the Central Excise Act 1944 - mischief on the account of phrase accumulated credit - principle of statutory interpretation - Rule 5 prior to its amendment in 2012 and amendments made in the Rule 5 of the CENVAT Credit Rules 2004 - HELD THAT - Central excise registration of the appellant would have been migrated into the GST regime and the appellant as per the returns filed was a continuing entity it could have been claim the benefit of taking this credit into their GST account. There is no law which provides that if appellant fail to exercise the exercise its right to carry forward this credit to the GST they could have claim the refund in cash. This is exactly as has been advised by the concern authorities to the appellant. Rule 5 of the CENVAT Credit Rules, 2004 was amended in the year 2012 and as per the amended rule there is no provision for the refund of the accumulated credit. The said rule after amendment provided for the refund of the Cenvat Credit taken during a particular quarter which is attributable to the export of the good or services during that quarter. Refund under Rule 5 has been made subject to the limitation as provided by the Section 11B of the Central Excise Act 1944. In the present case appellant could not show how there refund claim can be considered in terms of amended rule 5 and was filed within the period of limitation prescribed. I further note Rule 5 was amended with the objective taking note of the mischief on the account of phrase accumulated credit used in the said rule earlier. The rule was made more specific to provide refund only in specified circumstances of the CENVAT Credit attributable to the export of goods and services during specified period. It is settled position in law that while interpreting any such provision the courts or tribunal should take note of mischief sought to be corrected by the amendments made in law. The Mischief Rule also known as Heydon s Rule is a principle of statutory interpretation that guides courts to interpret legislation by identifying the mischief or evil the law aimed to address. It essentially prioritizes the purpose of the law over its literal wording. The rule also aims to prevent clever evasions or circumventions of the law that would allow the mischief to continue. Further I find that the issue is also covered against the appellant by the decision of larger bench of Bombay High Court in case of Gauri Plasticulture (P) Ltd. 2019 (6) TMI 820 - BOMBAY HIGH COURT and other decisions relied in the impugned order. Thus not find any merits in this appeal. Appeal is dismissed.

Summary

The core legal issues considered in this appeal revolve around the entitlement to cash refund of unutilized Cenvat credit under the erstwhile Central Excise regime and its transitional treatment under the GST regime. Specifically, the Tribunal examined whether the appellant was entitled to claim a cash refund of the accumulated Cenvat credit balance lying unutilized due to suspension or closure of manufacturing activities, and whether such refund claim was permissible under the provisions of the Central Excise Act, Cenvat Credit Rules, and the CGST Act, including relevant transitional provisions.

Further issues included the applicability of limitation provisions under Section 118 of the Central Excise Act, the effect of non-surrender of registration despite cessation of production, the scope and interpretation of Rule 5 of the Cenvat Credit Rules (post-2012 amendment), the statutory right to refund under tax laws, and the interplay between the erstwhile service tax credit regime and the GST transitional credit provisions, particularly Sections 140 and 142 of the CGST Act.

Additionally, the Tribunal considered the relevance and applicability of various judicial precedents cited by the parties, including Supreme Court and High Court decisions on refund claims, transitional credit, and statutory interpretation of tax laws.

Issue 1: Entitlement to Cash Refund of Unutilized Cenvat Credit under Central Excise Law

The appellant sought cash refund of Cenvat credit balance lying unutilized as per ER-1 returns filed under the Central Excise Act, citing factory closure and inability to utilize the credit. The Original Authority rejected the claim on grounds of limitation under Section 118 of the Central Excise Act, absence of any provision permitting cash refund of unutilized Cenvat credit except under Rule 5 of Cenvat Credit Rules, and the appellant's failure to avail transitional credit under GST through TRAN-1.

The Tribunal analyzed Rule 5 of the Cenvat Credit Rules, 2004, as amended in 2012, which restricts refund of Cenvat credit to cases where inputs or input services are used in exported goods or services. The amendment was aimed at curbing misuse of the phrase "accumulated credit" by confining refund to specific export-related circumstances. The Tribunal held that the appellant failed to demonstrate applicability of Rule 5, as the credit was not attributable to export activities. The appellant's contention that unutilized credit was "as good as cash" was rejected as unsupported by statutory provisions or judicial precedent.

The Tribunal further distinguished the appellant's case from precedents where refund was allowed upon surrender of registration, noting that the appellant had neither surrendered registration nor ceased filing returns till the GST transition. The Supreme Court's decision in the Slovak India Trading Co. case, which upheld denial of refund without surrender of registration, was held to be applicable.

Thus, the Tribunal concluded that there was no statutory provision or accrued right entitling the appellant to cash refund of unutilized Cenvat credit under the Central Excise law.

Issue 2: Limitation and Procedural Compliance in Claiming Refund and Transitional Credit

The Tribunal noted that the refund claim was filed beyond the one-year limitation period prescribed under Section 118 of the Central Excise Act. Moreover, the appellant failed to claim the credit in the ER-1 return within the prescribed time and did not file TRAN-1 to carry forward the credit under the GST regime. The Tribunal emphasized that the appellant's failure to comply with prescribed procedures resulted in loss of credit and consequent ineligibility for refund.

The Tribunal also observed that the appellant's attempt to claim credit in the service tax ST-3 return was improper, as the appellant was registered only for reverse charge mechanism and port services were not covered under reverse charge. This improper claim did not confer any right to refund.

Issue 3: Interpretation of Section 142(3) of the CGST Act and Transitional Provisions

The appellant relied on Section 142(3) of the CGST Act, which provides for refund of any amount of tax or Cenvat credit under the existing law in cash notwithstanding anything to the contrary in Section 11B of the Central Excise Act. The Tribunal examined whether this provision confers a new right to refund or merely preserves existing rights under the old law.

Relying on authoritative Supreme Court precedents, including Union of India v. VKC Footsteps India Pvt. Ltd., and the decision of the Jharkhand High Court in Rugta Mines Ltd., the Tribunal reiterated that refund is a statutory right, not a constitutional or fundamental right. The right to refund arises only when prescribed by law and subject to conditions and limitations therein. Section 142(3) does not create new rights but saves existing rights accrued under the old law as on the appointed day (1.7.2017).

The Tribunal further held that the appellant had no existing right to refund or credit on the appointed day, having failed to claim credit under the old law within prescribed timelines. Consequently, Section 142(3) could not be invoked to claim refund in cash.

The Tribunal also noted that the second proviso to Section 142(3), which bars refund if transitional credit has been taken, is not an eligibility condition but a restriction preventing double benefit.

Issue 4: Applicability of Judicial Precedents Cited by the Appellant

The appellant cited various decisions, including those of the Supreme Court and several tribunals, to support the claim for cash refund of unutilized Cenvat credit. The Tribunal carefully examined these precedents and found them distinguishable on facts or inapplicable due to changes in law, particularly the 2012 amendment to Rule 5 of the Cenvat Credit Rules and the introduction of the GST regime.

Notably, decisions allowing refund upon surrender of registration or in cases of export-related credit were found irrelevant as the appellant neither surrendered registration nor exported goods or services. Similarly, judgments concerning substantive rights to input credit did not extend to entitlement to refund under the existing law or transitional provisions.

The Tribunal also referred to a recent decision of the Hyderabad Bench of CESTAT, which held that refund of unutilized Cenvat credit is permissible only under specified provisions and that Section 142(3) of the CGST Act is an enabling provision that does not itself create a right to refund.

Issue 5: Effect of Non-Receipt of Original Invoice and Procedural Lapses

The appellant contended that late receipt of the original invoice for port services prevented timely claim of Cenvat credit in ER-1 returns and transitional credit under TRAN-1. The Tribunal held that such delay was attributable to the appellant and the service provider and did not absolve the appellant from compliance with statutory timelines. The appellant's failure to claim credit within prescribed time resulted in forfeiture of the right to credit and refund.

The Tribunal also found that the appellant's claim of credit in the ST-3 return was improper and could not be a basis for refund, as the appellant was not registered as a service provider liable to pay service tax on output services but only under reverse charge mechanism.

Issue 6: Principles of Statutory Interpretation and Application of the Mischief Rule

The Tribunal applied the Mischief Rule of statutory interpretation to the amended Rule 5 of the Cenvat Credit Rules, noting that the amendment was intended to prevent misuse of refund claims on accumulated credit unrelated to exports. The Tribunal held that the appellant's claim fell outside the scope of the amended rule and that judicial precedents predating the amendment were not applicable.

The Tribunal also emphasized that refund provisions must be strictly construed, as refund is akin to a concession or exemption in taxation, which is not a matter of right but subject to statutory conditions.

Issue 7: Limitation and Scope of Section 11B of the Central Excise Act

The Tribunal noted that Section 11B of the Central Excise Act governs refunds under the existing law and imposes strict timelines and conditions. The appellant's claim was barred by limitation and did not satisfy conditions for refund under Section 11B or Rule 5 of the Cenvat Credit Rules.

The Tribunal further observed that Section 11B does not sanction refund where the assessee failed to claim Cenvat credit as per law and lost the right to claim such credit.

Conclusions and Final Determinations

The Tribunal concluded that the appellant was not entitled to cash refund of the unutilized Cenvat credit balance under the Central Excise law or the transitional provisions of the CGST Act. The claim was barred by limitation, lacked statutory backing under Rule 5 of the Cenvat Credit Rules, and was precluded by the appellant's failure to claim credit within prescribed timelines and procedural requirements.

The Tribunal held that Section 142(3) of the CGST Act does not create new rights to refund but preserves existing rights under the old law, which the appellant did not possess. The appellant's improper claim of credit in service tax returns did not confer any right to refund.

The Tribunal rejected the appellant's reliance on judicial precedents that were factually distinguishable or predated relevant amendments and changes in law.

Significant holdings include the following verbatim excerpts:

"His contention that the Cenvat credit lying in balance was as good as cash and the same was therefore refundable in cash was not supported by any provisions of the law and was in fact in contradiction to the judgements/decisions cited above in which it was concluded that the cash refund of the unutilized Cenvat credit was not permissible except under the conditions laid down in Rule 5 ibid, which was not the case of the appellant."

"The inability to utilize the Cenvat credit due to the closure of the factory was not the ground for claiming the refund in cash, as has been held in the case laws cited supra."

"Section 142(3) does not confer a new right which never existed under the old regime except to the manner of giving relief by refund in cash if the person is found entitled under the existing law in terms of the existing law. Section 142(3) does not create any new right on any person but it saves the existing right which existed on the appointed day and provides the modalities for refund in cash if found entitled under the existing law as the entire claim is mandated to be dealt with as per the existing law. It neither revive any right which stood extinguished in terms of the existing law nor does it create a new right by virtue of coming into force of CGST Act."

"Refund of taxes is one form of granting exemption; once a refund is construed as a form of exemption from taxes, the provision has to attract strict interpretation; exemptions, concessions and exceptions have to be treated at par and must be strictly construed; ITC is not a matter of right and the burden of proof is on the assessee to establish a claim for a concession or benefit."

"When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated at par on a matter of a refund of unutilized ITC cannot be accepted."

"Where any input or input service is used in the final product, which is cleared for export etc. or used in the intermediate product cleared for export or used for providing output service which is exported, then, the Cenvat credit in respect of the input or input service so used shall be allowed to be utilised... and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitation."

"Therefore, essentially when there is no provision in the law either under the Cenvat Credit Rules 2004 or in the Finance Act 1994 to allow cash refund, for such accumulated credit, Section 142(3), per se, cannot make it an eligible refund merely because the appellant have not been able to utilize on the ground of not having filed the revised return or were not able to take the TRAN-1 route etc., within specified time."

"The appellant never had a right to claim refund under the existing law and had failed to exercise their right to claim Cenvat credit as per law and wrongly claimed the impugned amount as credit in Service Tax Return (S.T. 3 return)."

The appeal was dismissed accordingly.