Commissioner Of Central Excise, Salem vs K.G. Denim Ltd

Appeal Nos.E/498/2009 (By Dept.) [Arising out of Order-in-Appeal No.101/2009-CE (SLM) dated 29.7.2009 passed by the Commissioner of Central Excise (Appeals), Salem]

Commissioner of Central Excise, Salem Appellant-Revenue K.G. Denim Ltd. Respondent-Assessee

E/601/2010 (By Dept.) [Arising out of Order-in-Appeal No.32/2010-CE (SLM) dated 29.6.2010 passed by the Commissioner of Central Excise (Appeals), Salem]

Commissioner of Central Excise, Salem Appellant-Revenue K.G. Denim Ltd. Respondent-Assessee

E/589/2009 (by Assessee)

[Arising out of Order-in-Appeal No.104/2009-(CE) (SLM) dt. 29.7.2009 passed by the Commissioner of Central Excise (Appeals), Salem]

K.G. Denim Ltd. Appellant-Assessee Commissioner of Central Excise, Salem Respondent-Revenue

Appearance:

Shri K.P. Muralidharan, AC (AR) For the Assessee Shri K.S. Venkatagiri, Advocate (AR) For the Revenue

CORAM:

Honble Shri R. Periasami, Technical Member

Date of hearing : 24.3.2015 Date of Pronouncement :26.6.2015

FINAL ORDER No._____________

All the three appeals relate to sanction of refund. Therefore, all are taken up together. Appeal No.E/498/2009 and E/601/2009 are filed by the Revenue and E/589/2009 is filed by the assessee. 2. Revenue appeals relate to sanction of refund in cash of the predeposit amount Rs.10 lakhs before Tribunal debited in cenvat credit account. The appellant-assessee relates to rejection of refund of Rs.20,60,023/-. 3. The brief facts of the case are that assessee filed appeal before Tribunal against Commissioner (Appeals) order upholding the demand of cenvat credit of AED (Textile & Textile Articles) paid on textile yarn used in the manufacture of Denim Fabrics. Appellants availed credit of AED (T & TA) and utilised the same for payment of BED and AED(GSI) on the finished products. The adjudicating authority confirmed the demand of reversal credit of Rs.36,06,472/-. On appeal before Tribunal, the Tribunal ordered predeposit of Rs.10 lakhs vide Stay Order No.365/2005 dt. 11.3.2005 [2005 (192) ELT 599 (Tri.-Chennai)]. In the meanwhile, the appellants opted to avail exemption under Notification No.30/2004-CE dt.

9.7.2004 on their textile products after reversing the credit on inputs in stock, inputs in process and finished products lying in stock as on 9.7.2004. Since there were not required to reverse balance unutilized credit of Rs.30,60,023/- availed on the inputs which were used in the manufacture of textile goods already cleared on payment of duty prior to 9.7.2004, they have debited Rs.10 lakhs from their cenvat credit balance lying in their account towards the predeposit ordered by the Tribunal. Subsequently appellant on their own paid the balance demand amount of Rs.20,63,023/- + by debiting the remaining cenvat credit balance available with them. The Tribunal in their Final Order No.1337/2007 dt. 8.10.2007 [2008 (222) ELT 464 (Tri.-Che.)] accepted the departments stand on merits but set aside the order of the lower authority on the ground of limitation. Consequent to the order of the Tribunal, appellant filed a refund claim of the entire amount of Rs.30,60,023/- [predeposit of Rs.10 lakhs + voluntary payment of Rs.20,60,023/- both made through debit in Cenvat account]. 4. The original adjudicating authority in his Order-in-Original No.123/2008 dt.

21.11.2008 sanctioned the refund of Rs.10 lakhs to be paid in cash which was paid by the appellant through debit in cenvat account towards predeposit. He rejected the refund claim balance amount of Rs.20,60,023/- on the ground that appellant had availed exemption under notification NO.30/2004-CE dt. 9.7.04 and the available credit in their books of account is automatically got lapsed once they opted for exemption under the above notification. Both assessee and Revenue filed appeals before Commissioner (Appeals), the Assessee's appeal against rejection of refund of Rs.20,60,023/- and the Revenue's appeal against sanction of refund of Rs.10 lakhs in cash. Commissioner (Appeals) in his OIA No.104/2009 dt. 29.7.2009 rejected the assessees appeal and vide OIA No.101/09 dt. 29.7.09 rejected Revenues appeal. Hence both assessee and Revenues appeal in Appeal No.E/498/2009 and E/589/2009 before Tribunal against two OIAs above respectively. 5. Appeal No.E/601/2009 relates to Revenues challenge against the sanction of the same amount of predeposit of Rs.10 lakhs. When the adjudicating authoritys order dt.

21.11.2008 sanctioning refund of Rs.10 lakhs was reviewed by the department and filed appeal before Commissioner (Appeals), the adjudicating authority issued a protective SCN dt. 23.6.2009 for recovery of the refund of predeposit sanctioned. The Revenues appeal was rejected by the Commissioner (Appeals) vide OIA No.101/09 dt. 29.7.09 and the Revenue also field appeal against the said order before the Tribunal on 28.8.2009 and the appeal was pending before Tribunal. During the pendency of Revenue appeal before Tribunal, the Addl. Commissioner of Central Excise proceeded to adjudicate the protective SCN dt.23.6.2009 and again confirmed the amount of Rs.10 lakhs as erroneous refund sanctioned in his OIO No.27/2009 (ADC) dt. 30.9.2009. Against this order, appellant preferred appeal before Commissioner (Appeals). Commissioner (Appeals) set aside that order and allowed the appeal vide OIA No.32/2010 dt. 29.6.2010 and maintained status quo of the OIA No.101/09. Again Revenue preferred appeal E/601/2009 against OIA No.32/2010 on the same issue for the aforesaid reason. 6. Heard both sides. 7. Ld Advocate appearing on behalf of appellant-assessee in E/589/09 submitted a written synopsis and reiterated the same as a respondent in Revenues appeal in E/601/09 and in E/498/09.

As regards the assessees appeal on the rejection of refund claim of Rs.20,60,023/, he submits that the consequential refund was rejected on the ground that cenvat credit lapsed w.e.f. 1.3.2007 in view of amendment to Rule 11 of CCR 2004 wherein sub rule (3) of Rule 11 was inserted. He submits that sub-rule (3) of Rule 11 was introduced only w.e.f. 1.3.2007. and it cannot apply retrospectively for the period prior to 9.7.2004 and also submits that this rule will apply only to the cases where the notification exempts duty unconditionally whereas Exemption Notification No.30/04 availed by them is a conditional notification. He further submitted that sub-rule (3) had two sub-clauses (i) and (ii) and the Clause (ii) of sub-rule (3) is applicable only if the final products are exempted absolutely under Section 5A, where the balance credit remaining utilized would get lapsed. He submits that notification No.30/2004 grants exemption from excise duty on the textile products subject to conditions that no cenvat credit is taken on the inputs or capital goods. In this regard, he relied on Boards circular No.845/3/2007-CX.

Dt. 1.2.07 wherein the Board clarified that non-availment of credit on the inputs is a pre-condition for availing the exemption under this notification. He also relied Boards circular dt. 8.11.07. He submits that it is a conditional notification and it cannot be said that the goods were exempted absolutely. He further submits that while opting for the exemption under notification 30/04 they have reversed the entire credit on the inputs lying stocks, inputs in process and the credit contained in the finished goods lying in stock. Prior to 1.3.2007 there was no provision in the rule for lapse of any unutilized credit availed on the inputs used in the final products already cleared either on payment of duty or exported. On this issue, he relied on the following citations :- (i) Bazargaon Paper & Pulp Pvt. Ltd. 2013 (296) ELT 198 (ii) Venu International - 2014 (312) ELT 859 (G.O.I.) (iii) Inter Globe Services - 2011 (272) ELT 476 (G.O.I) (iv) JAI Corp. Ltd. - 2014 (312) ELT 961 (G.O.I) 8. On the Revenue appeals, he submits that they have rightly debited cenvat credit of Rs.10 lakhs towards predeposit from the balance of unutilized credit available with them as on 9.7.2004.

Tribunal also accepted as compliance the predeposit made through debit in cenvat account. In view of Tribunals final order, they are eligible for the refund of predeposit made in cash. Revenue contended that refund of predeposit made through cenvat account cannot be sanctioned in cash. The department also contended that said predeposit is also not in order on the entire credit lapsed automatically once the appellant opted for exemption under Notification 30/04. He submits that department relying on rule 5 where refund of unutilized cenvat credit can be refunded in cash only on account of exports and in their case the accumulation of credit is not only on account of exports. Since they have stopped availing the credit as the goods were fully exempted refund should be allowed in cash. He relied on the following cases laws :-

(i) CCE Vs Ashok Arc. 2006 (192) ELT 399

(ii) CCE Ranchi Vs Ashok Arc. 2006 (193) ELT ELT 399 (Jhar.)

(iii) Raymond Ltd. Vs CCE Mum.III 2011 (274) ELT 513 (Tri.-Mum.)

9. On the other hand, Ld. A.R. reiterated the impugned order and grounds of appeal (GOA) of Revenue appeals. He submits that appellant availed notification No.30/2004 where the goods are fully exempted. As per rule (3) of Rule 11 of CCR where the assessee opted for exemption, the credit remaining in balance automatically lapsed and they are not allowed to utilise the said credit for payment of duty on any final product. Notification No.30/04 was issued under Section 5A of Central Excise Act and grants full exemption on the textile yarn and textile products. He further submits that appellants have wrongly utilised the credit which was otherwise lapsed. This is a clear violation of Rule 11 (3) (ii). Once the credit is lapsed the appellant ordering payment of predeposit by using said credit is also not correct. Again the appellant paid Rs.20 lakhs on their own and utilised the credit which was otherwise lapsed on 9.7.2004 . He submits that as on 9.7.2004 appellants had balance of Rs.50,88,792/- of which they have reversed Rs.20,28,769/- which are credit attributable to inputs and inputs in stock and finished goods in stock.

They had a credit balance of Rs.30,60,023/-, and the entire credit gets lapsed once they have opted for exemption under notification 30/04 whereas they have deliberately used the balance credit for payment of predeposit and voluntary payment of the remaining dues towards the demand when the credit balance lapsed as on 9.7.2004 and the balance is NIL and in effect they have not paid any amount. He reiterated para-11 of the OIO and also para 7.3 of OIA No.104/09 dt. 29.7.09. He also submits that appellants payment by debiting cenvat credit cannot be refunded in cash as there is no provision in CCR to refund the amount in cash except in the case of Rule 5, refund of unutilized credit is allowed by way of cash refund where the unutilised credit is on account of exports. Whereas the appellant filed refund claim amount deposited by way of debiting the unutilized credit. The adjudicating authority instead of allowing the refund of predeposit by way of re-credit in cenvat account, he erroneously sanctioned the amount in cash which is against the provisions of law. He submits that the case laws relied upon by appellant related to admissibility of refund in cash where assessees unit was closed completely whereas appellants unit is fully functioning and registered with the department and clearing the finished goods for exports as well as for domestic purpose and also discharging service tax.

Therefore, he submits appellants case that appellants unit is neither closed or defunct where the cenvat credit balance cannot be utilized for any other purpose. He relied on following case laws :- (i) Commissioner Vs Raymond Ltd. 2013 (30) STR J118 (Bom.) (ii) Steel Strips Vs CCE Ludhiana 2011 (269) ELT 257 (Tri.-LB) (iii) Spentex Industries Ltd. Vs CCE Indore 2010 (253) ELT 225 (Tri.-Del.) 10. I have carefully considered the submissions of both sides and also examined the grounds of appeal made in the Revenue appeals. At the outset, I find that Revenue has filed two appeals i.e. Appeal E/498/09 and E/601/2010 against OIA No.101/09 dt. 29.7.09 and OIA No.32/10 dt. 29.6.2010 respectively. Both these Revenue appeals relate to the same issue of sanction of refund of predeposit of Rs.10 lakhs. I find that appellant-assessee filed refund claim of Rs.30,60,023/- consequent to Tribunals Final order dt. 8.10.2007. On a perusal of above Tribunals order, I find that Tribunal had accepted the department stand on merits but set aside the demand on the ground of limitation. The Deputy Commissioner of Central Excise in his order dt.

21.11.2008 had sanctioned the refund of predeposit of Rs.10 lakhs (paid through cenvat credit) in cash and rejected the amount of Rs.20,60,023/- voluntarily paid by them. LAA had rejected both assessee's and Revenue's appeals. Therefore both the Revenue and assessee's appeals arose out of D.C.'s order dt.21.11.2008. 11. On perusal of the impugned order, I find both the adjudicating authority and LAA while rejecting the refund of Rs.20,60,023/- held that the appellants have utilized the credit which was remaining in balance as on 9.7.2004 and the said credit shall lapse on 9.7.2004 when the appellants availed exemption notification 30/04 dt. 9.7.2004. Revenue also relied on Rule 11(3) which came into force w.e.f. 1.3.2.007 vide Notfn 10/07 CE (NT). As per clause (ii) of sub rule (3) of rule 11, on the date of opting for exemption, assessees have to reverse the credit on inputs lying in stock, inputs in process and inputs contained in the final products lying in stock and balance credit amount available in cenvat credit account shall lapse and shall not be utilised for payment of duty.

12. The main issues in all these appeals are two-fold (i) whether the credit balance lying in the cenvat account as on 9.7.2004, the date of appellants opting for full exemption under Notfn 30/2004 shall lapse or available to the appellant-assessee for payment of duty and predeposit to them (ii) whether the consequential refund of predeposit sanctioned in cash is valid or not when the said amount was paid through cenvat credit. On perusal of the records, I find that appellants are regularly discharging central excise duty on their finished textile products and availed cenvat credit on the inputs. They opted for exemption under Notification No.30/04 which exempted the goods from the whole of excise duty. Appellants goods are covered under Sl.No.3 of the notification. For easy reference, the notification No.30/2004-CE dt. 9.7.2004 is reproduced as under :-

"In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 7/2003-Central Excise dated the 1st March 2003, published in the Gazette of India vide number G.S.R. 137(E), dated 1st March 2003, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, from whole of the duty of excise leviable thereon under the said Central Excise Act : Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or capital goods has been taken under the provisions of the CENVAT Credit Rules, 2002, -

Table S. No. Chapter or heading No. or sub-heading No. Description of goods (1) (2) (3) 1. ....

....

2. ....

....

3. 52.04, 5205.11, 5205.19, 5206.11, 5206.12, 52.07, 52.08, 52.09 All goods

Proviso to the above notification clearly stipulates that this notification shall not apply to cases in respect of which credit of duty availed on the inputs and capital goods. It is also on record that appellants while opting for exemption under the above notification had reversed the entire credit attributed to the inputs lying in stock, inputs in process, and inputs contained in the finished goods lying in stock. Even after complying such reversal they still had the balance credit in their account which is pertaining to the finished goods already cleared prior to 9.7.2004. On a plain reading of the notification No.30/04, it is evident that there is no such pre-condition envisaged in the notification that the credit remaining in balance as on the date of opting for full exemption shall lapse. Whereas the LA relied the transitional provision stipulated in Rule11 of CCR 2004 as amended and concluded that credit shall lapse. The sub-rule (3) was inserted in Rule 11 w.e.f. 1.3.2007. The Sub rule(1) & (3) of Rule 11 is reproduced as under :-

"RULE 11.?Transitional provision.  (1)?Any amount of credit earned by a manufacturer under the CENVAT Credit Rules, 2002, as they existed prior to the 10th day of September, 2004 or by a provider of output service under the Service Tax Credit Rules, 2002, as they existed prior to the 10th day of September, 2004, and remaining unutilized on that day shall be allowed as CENVAT credit to such manufacturer or provider of output service under these rules, and be allowed to be utilized in accordance with these rules.

...

(3) A manufacturer or producer of a final product shall be required to pay an amount equivalent to the CENVAT credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, -

(i) he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under section 5A of the Act; or

(ii) the said final product has been exempted absolutely under section 5A of the Act, and after deducting the said amount from the balance of CENVAT credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported."

13. The above sub-rule (3) was inserted in Rule 11 w.e.f. 1.3.2007 and prior to this amendment, the sub rule (1) of Rule11 was relevant and this stipulates that any amount of credit earned by a manufacturer availed under CCR 2002 as existed prior to the date of 10.9.2004 and remaining unutilizsed on that day shall be allowed as cenvat credit and they are allowed to utilize the said credit whereas the appellant's case relates to the period prior to 9.7.2004 and the amendment to Rule 11 was inserted only from 1.3.2007. The said amendment cannot have any retrospective effect for the earlier period. The transitional provisions stipulated in sub-rule(1) is clear and unambiguous that any credit remaining unutilized prior to 10.9.2004 is to be allowed to the appellant and they are entitled to utilise the said credit. Therefore, Revenue relying on the sub-rule (3) of rule 11 that entire credit balance remaining in their cenvat account as on 9.7.2004 shall lapse is not justified, and valid and not in accordance with the Rules as existed during the relevant period. Further, it is evident that the credit lying in balance in the cenvat account is related to inputs which were utilized in the final products and already cleared on payment of duty. Therefore, in the absence of any specific provision in Notification No.30/04 or any other provision prior to 1.3.2007, there is no lapse of credit and the sub-rule(3) cannot be applied retrospectively for the period prior to 9.7.2004.

14. The appellants also contended that sub-rule (3) is not applicable in their case as the exemption notification No.30/04 is not an absolute exemption but only a conditional exemption. As seen from the notification No.30/04 reproduced above, this notification was issued under section 5A of Central Excise Act exempting textile fabrics from the whole of excise duty. The proviso to the notification stipulates that this exemption shall not apply to the goods in respect of which credit of duty on the inputs or capital goods has been taken under CCR. Therefore, it is evident that the Notification No.30/2004 is a conditional one and cannot be considered as absolute exemption and Clause(ii) of sub rule(3) of Rule 11 is applicable only if the final product is exempted absolutely. Therefore, the sub-rule (3) of Rule 11 is not applicable in appellants case and the cenvat credit balance lying unutilised on 9.7.2004 i.e. the date of opting for exemption shall not get lapsed and the appellants are eligible to utilize the credit in accordance with CCR. Accordingly, the appellants have rightly utilized the credit for payment of predeposit of Rs.10 lakhs as per the Tribunals interim order and voluntarily paid Rs.20,60,023/- through cenvat account towards the demand.

15. Now the second issue for consideration is whether the consequential refund of predeposit sanctioned in cash by the original authority is valid or otherwise. The Revenue contended that the said refund cannot be allowed in cash as there is no such provision in CCR or in any other rules. I find that both predeposit and the subsequent voluntary payment of the demand was paid through debit in cenvat credit. The appellants main plea for refund in cash is that as they cannot utilize the credit and they are availing full exemption. They relied Tribunals decision in the case of Raymond Ltd. Vs CCE (supra) and the Tribunal decision in Century Paper Vs CCE Meerut (supra) and CCE Vs Ashok Arc (supra) where the Tribunal upheld the refund of deposit made through RG-23A Part-I sanctioned in cash. I find in the above cases the Tribunal had allowed refund in cash only on the ground that assessee was not in a position to utilize the credit as the unit was closed. In the case of Raymond Ltd. (supra) relied by the appellant, I find that the said order was reviewed and appealed by Revenue before Honble Honble High Court of Bombay wherein the High court considering substantial question of law had duly admitted Revenue appeal reported in 2013 (30) STR J118 (Bom.), therefore, the said decision is not applicable to the facts of the present case.

16. In this regard, the Tribunals Larger Bench decision in the case Steel Strips Vs CCE Ludhiana (supra) the Tribunal categorically held that except in the case of exports where express provisions for grant of cash refund of unutilized credit is provided, no refund of cash of unutilized cenvat credit is admissible. Relevant paragraph of order is reproduced as under :-

"5.16?Modvat law has codified procedure for adjustment of duty liability against Modvat Account. That is required to be carried out In accordance with law and unadjusted amount is not expressly permitted to be refunded. In absence of express provision to grant refund, that is difficult to entertain except in the case of export. There cannot be presumption that in the absence of debarment to make refund in other cases that is permissible. 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. Therefore, present reference is to be answered negatively and in favour of Revenue since refund of unutilized credit is only permissible in case of export of goods and for no other reason whatsoever that may be. As has been stated earlier that equity, justice and good conscience are the guiding factors for Civil Courts, no fiscal Courts are governed by these concepts, the present reference is bound to be answered in favour of Revenue and it is answered accordingly."

The ratio of above Larger Bench decision is squarely applicable to the present case. The Tribunal in the above case has distinguished the Larger Bench decision in the case of Gauri Plasticulture Pvt. Ltd.  2006 (202) ELT 199 (Tri-LB). Therefore, there is merit in the Revenues appeal against the granting of refund in cash by the original authority. In the present case, the appellant neither closed their unit nor their registration is cancelled and they are fully viable and functioning and producing Denim fabrics and clearing for domestic as well as for exports and also discharging service tax liabilities. Therefore, I am unable to accept the appellants contention that refund of predeposit and voluntary duty payment should be paid in cash only. By respectfully following Tribunals Larger Bench decision (supra) which is binding on this Tribunal, I hold that predeposit amount of Rs.10 lakhs and Rs.20,63,023/- voluntarily paid cannot be allowed by way of cash refund and said refund is to be allowed by way of re-credit in cenvat account.

17. Before parting with the case, I observe that Revenue appeal 601/09 which is arising out of OIA No.32.2010 which the recovery of predeposit of Rs.10 lakhs when the Revenue s appeal E/488/2009 against the OIA No.101/09 on the same issue is still pending before this Tribunal, the lower authority ought not to have proceeded to adjudicate the protective SCN issued for erroneous refund. The judicial discipline demands that in a quasi-judicial proceedings when the order of the Commissioner (Appeals) is in favour of appellant, the sub-ordinate authority should implement the order unless the order is stayed or set aside. Further, I find that adjudicating authority in his order dt. 30.9.2009 has recorded in his findings that Commissioner (Appeals) order is not acceptable which is beyond his powers and not expected from subordinate authority. When the adjudicating authority is fully aware that the Committee had already reviewed the above Commissioner (Appeals) order dt. 29.7.2009, but he chose to ignore and proceeded and passed the order confirming the demand as erroneous refund on 30.9.2009 instead of keeping the protective SCN pending till the outcome of the Revenue appeal pending before Tribunal. Accordingly, I find that both appeal E/601/09 and E/498/09 stand merged.

18. In view of foregoing reasons, both the assessees and Revenues appeal are partly allowed and the refund amount of Rs.30,60,023/- is allowed by way of recredit in cenvat credit account and not by cash refund. The appeals are disposed of in the above terms.

(Pronounced in open court 26.6.2015)

(R. PERIASAMI) TECHNICAL MEMBER

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