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Gauri Plasticulture (P) Ltd. v. Commissioner Of Central Excise, Indore
Summary of Opinion (Order per: Archana Wadhwa, Member (J))
Factual and Procedural Background
A Referral Bench noted divergent Tribunal views on whether duty debited in RG-23A Part-II can be refunded in cash when the refund otherwise becomes due, and referred that question to a Larger Bench. The Bench heard counsel for the appellants (Shri A.V. Naik) and the revenue (Shri Ajay Saxena, ld. SDR). The opinion reviews a number of Tribunal and High Court / Supreme Court authorities addressing whether amounts debited to RG-23A Part-II or arising from denied proforma/modvat/cenvat credits can be refunded in cash or must be credited back to the RG/PLA account.
On the facts of the instant appeal: the appellants made a debit entry in their credit account on 23-11-2000. The appellants had surrendered their Central Excise registration in September 2000 (i.e., before making the debit entry in RG-23). On subsequent success of their appeal before the Commissioner (Appeals), the appellants claimed a cash refund. The Bench applied its principles to find that a cash refund should not be allowed in this case because the debit did not represent duty discharged from PLA (no cash payment), and the credit would have remained unutilized after surrender of registration; granting cash refund would amount to unjustified enrichment. The order was pronounced in court on 21-08-2006 and the appeal papers were returned to the original Referral Bench for disposal of the appeal.
Legal Issues Presented
- Whether duty debited in RG-23A Part-II can be refunded in cash when a refund otherwise becomes due.
- Under what circumstances (if any) a refund arising from denied/withheld proforma/modvat/cenvat credit that has been debited to RG-23A Part-II should be paid in cash (or by cheque) rather than being credited back to RG-23A/PLA.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| DCM Data Products v. CCE, New Delhi (Tri.) | Issue regarding allowance of proforma credit, delay by Revenue and subsequent transfer to RG-23A Part-II; necessity for paying duty through PLA due to department's delay. | The Tribunal observed appellants sought recasting/readjustment of RG-23 and PLA because payment through PLA arose entirely due to departmental delay; cited as an instance where departmental delay compelled PLA payment. |
| National Organic Chemicals Industries Ltd. v. CCE, Mumbai (Tri.) | Set off of duty rejected by Assistant Commissioner but later allowed on appeal; meanwhile notification rescinded preventing set off—issue whether refund in cash is permissible. | The Tribunal held that on subsequent success of appeal the amount can be refunded in cash because set off could not be claimed during the relevant period due to initial rejection; Tribunal relied on several authorities in reaching this view. |
| Deccan Sales Corporation v. R Parthasarthy (Bom.) | Bombay High Court decision noted by the Tribunal (as authority relied upon in National Organic Chemicals case). | Referenced by the Tribunal in support of the proposition that cash refund may be permissible where set off became practically unavailable due to prior departmental action. |
| Andhra Pradesh Paper Mills Ltd. v. CCE (Tri.) | Tribunal decision relied upon in support of cash refund where set off/credit was unavailable due to departmental action. | Noted as part of the body of Tribunal decisions supporting cash refund under such circumstances. |
| Wimco Ltd. v. UOI (All.) | Allahabad High Court order cited in context of allowing refund in cash where set off was not practicable due to rescission or administrative denial. | Referenced by the Tribunal as part of authorities supporting cash refunds in analogous circumstances. |
| Hindustan Lever Ltd. v. CCE (Tri.) | Held that such amount (where credit could not be utilized due to departmental action) can be claimed by way of cash refund. | Relied upon by the Tribunal to support payment of refunds in cash in appropriate cases. |
| Sandoz (India) Ltd. v. CCE (Tri.) | Where refund arises on allowance of appeal but it becomes impracticable to avail set off due to rescinding of notification, the credit must be paid in cash or by cheque. | The Tribunal observed that the credit is required to be paid in cash or by cheque in such circumstances. |
| CCE, Bhubaneswar v. Orient Paper Mills (Tri.) | Held that bar of unjust enrichment is not applicable where availment of credit is rendered impossible by the Department's initial refusal/delay. | Noted by the Bench as authority supporting cash refund where department's actions prevented utilisation of credit. |
| MRF Ltd. v. CCE (Tri.) | If availment of relief cannot be given in the assessee's ledger account, the amount of relief is payable in cash or by cheque. | The Tribunal held that the relief is payable in cash/cheque where ledger utilization is not possible; appeal against that order was dismissed by the Supreme Court (reported as Collector v. MRF Ltd.). |
| Collector v. MRF Ltd. (S.C.) | Supreme Court dismissed appeal against the Tribunal's order in MRF Ltd. case (as reported). | Cited to indicate that the Tribunal's approach in MRF Ltd. (payment in cash where ledger utilisation impossible) was not overturned by the Supreme Court in that reported instance. |
| CCE v. Bombay Burmah Trading Corporation Ltd. (Tri. - Del.) | Held there is no bar under Section 11B for payment of refund by cheque/cash where original payment was from Modvat/Cenvat account and the assessee ceased to exist as a manufacturing unit and had no Cenvat account into which refund could be credited. | Applied to support payment of refund by cheque/cash where there is no available account for crediting refund due to cessation of manufacturing operations. |
| CCE v. Omkar Textiles (Tri.) | Where factory was closed before allowance of Modvat credit and utilization was prevented due to initiation of departmental proceedings, the assessee is entitled to cash refund. | Noted as authority for allowing cash refunds when utilization was made impossible by closure or departmental action. |
| Allampally Brothers Ltd. v. CCE, Cochin (Tri. - Bang.) | Refund of duty paid through Cenvat credit allowed in cash where the assessee stopped manufacturing activities. | Specified that cash refund was allowed to the extent of duty paid in PLA during the relevant period. |
| TI Cycles of India v. CCE, Madras (Tri.) | Contrary view: refund of duty amount paid by debit to RG account should be credited back to the same account and not paid in cash or by cheque. | Presented as a contra decision against the line of authorities allowing cash refunds; relied on by those who deny cash refund where debit was to RG account. |
| CCE, Chennai v. Rajashree Cements (Tri. - Chennai) | Listed as a contra view (no elaboration in the opinion). | Cited as an example of Tribunal decisions opposing cash refunds for amounts debited to RG accounts. |
| Purvi Fabrics & Texturise (P) Ltd. v. CCE, Jaipur-II (Tri. - Del.) | Listed as a contra view (no elaboration in the opinion). | Cited as another example of decisions denying cash refunds where amounts were debited to RG accounts. |
Court's Reasoning and Analysis
The Bench undertook a comparative review of multiple Tribunal and court decisions, identifying two competing lines of authority:
- Decisions permitting cash refunds where departmental delay, refusal or rescission of notifications rendered the assessee unable to utilize credit and thereby compelled payment from PLA or cash; and
- Decisions denying cash refunds on the ground that rules do not expressly provide for cash refunds of credits debited to RG accounts and that refunds should be credited back to the same account.
The Bench reasoned from first principles of equity, justice and good conscience. It distinguished between (a) credit that was actually used to discharge duty (i.e., where the assessee was compelled by the Department's action to pay duty out of PLA or cash) and (b) credit that simply remained unutilized in the assessee's Modvat/Cenvat account. The core points of the analysis are:
- If denial of credit forced the assessee to pay duty out of PLA (i.e., actual cash/PLA payment was made during the relevant period because utilization of credit was prevented), then on subsequent success of the claim the refund of that payment is admissible in cash or by cheque to the extent of actual cash/PLA payments.
- If no cash/PLA payments towards duty were made (the credit would have remained unutilized and merely reflected as a debit in the RG account), then that credit cannot be refunded in cash because refunding such an amount would unjustifiably enrich the assessee. The Bench emphasized that the case is not about refund of unutilized credit but about amounts which were effectively used to discharge duty due to departmental compulsion.
- The Bench concluded that there is no express bar in the Modvat rules to refund in cash in appropriate circumstances; however, equity precludes cash refunds where the credit was never used to discharge duty out of PLA/cash.
- Applying this ratio to the present facts: the appellants had surrendered their Central Excise registration before the debit entry; therefore, the amounts would have remained unutilized and the appellants did not discharge any duty out of PLA. Consequently, a cash refund would unjustifiably enrich the appellants and is therefore not permissible.
Holding and Implications
Core Holding: The Bench held that refund in cash is admissible only to the extent that denial of credit compelled the assessee to pay duty out of PLA (i.e., actual cash/PLA payments were made during the relevant period). If no such cash/PLA payments were made and the credit would have remained unutilized, the credit cannot be refunded in cash.
Implications:
- Direct effect on the parties: The appellants' claim for a cash refund was refused on the facts of this case because the debit entry was made after surrender of registration and no duty had been discharged from PLA; granting cash would have caused unjustified enrichment.
- The Bench applied the clarified ratio to the present appeal and directed that the appeal papers be returned to the original Referral Bench for disposal.
- The opinion articulates a working principle limiting cash refunds to situations where departmental action actually forced payment from PLA/cash. The opinion does not purport to create an exhaustive rule beyond the ratio stated and does not record any broader alteration of statutory provisions; it applies established authorities and equity principles to reconcile conflicting Tribunal views.
Pronounced in Court on 21-08-2006. The appeal papers were returned to the original Referral Bench for disposal.
[Order per : Archana Wadhwa, Member (J)]. - Referral Bench, after taking note of divergent views of the Tribunal’s various decisions, on the issue as to whether duty debited in RG. 23A Part-II, can be refunded in cash, when the refund becomes otherwise due, has referred the said question to the Larger Bench.
2. We have heard Shri A.V. Naik, ld. Advocate appearing for the appellants and Shri Ajay Saxena, ld. SDR appearing for the revenue.
3. We have taken note of various decisions of Tribunal in the case of DCM Data Products v. CCE, New Delhi [ (Tri.)] the issue involved was as regards the allowing of proforma credit, which the revenue delayed and the subsequent transfer of the same to RG.-23A Part-II. In the meanwhile duties were paid by them through PLA. On subsequent success of their appeal, the Tribunal in para 6 of their judgement observed as under :-
“The appellants seek recasting/readjustment of RG.-23 and PLA as the necessity for paying duty through PLA arose entirely due to the delay on the past of the department in allowing proforma credit in time as would be evident from the chronology of dates and events given below.”
4. In the case of National Organic Chemicals Industries Ltd. v. CCE, Mumbai [ (Tri.)], it was observed that set off of duty was rejected by the Assistant Commissioner but subsequently allowed by the appellate authority, as a result of which the appellants became entitled to the consequential benefit. However, in the meanwhile notification was rescinded by the Government and, hence the assessee could not claim set off of duty. While entertaining the assessee’s contention for refund of the same in cash, the Tribunal observed that as the set off could not be claimed by the assessee during the relevant period on account of rejection of the same by the Assistant Commissioner, on subsequent success of their appeal, the same can be refunded in cash. For arriving at the above conclusion, the Tribunal took note of Bombay High Court’s decision in the case of Deccan Sales Corporation v. R Parthasarthy [ (Bom.)], the Tribunal’s decision in the case of Andhra Pradesh Paper Mills Ltd. v. CCE - (Tri.) and Allahabad High Court order in the case of Wimco Ltd. v. UOI - (All.). Reliance was also placed upon another Tribunal’s decision in the case of Hindustan Lever Ltd. v. CCE [ (Tri.)] holding that such amount can be claimed by way of cash refund also. Appeal against the above order of the Tribunal was dismissed by the Hon’ble Supreme Court as reported in (S.C.).
5. Similarly in the case of Sandoz (India) Ltd. v. CCE - (Tri.), the Tribunal observed that refund arising as a consequence of allowing of appeal but not practicable to avail on account of rescinding of set off notification in the meanwhile, the credit is required to be paid in cash or by cheque. We also take note of another decision of the tribunal in the case of CCE, Bhubaneswar v. Orient Paper Mills - (Tri.) observing that the bar of unjust enrichment is not applicable to cases where availment of set off/proforma credit/modvat credit/money credit scheme is rendered impossible by Department’s initial refusal and/or delay. In the case of MRF Ltd. v. CCE [ (Tri.)], it was observed that if the availment of relevant demand towards payment of duty and the finished excisable goods cannot be given in personal ledger account or appropriate account of the appellants, the amount of relief is payable in cash or by cheque. The appeal against the order was dismissed by the Hon’ble Supreme Court as reported in Collector v. MRF Ltd. - (S.C.).
6. Tribunal in the case of CCE v. Bombay Burmah Trading Corporation Ltd. - (Tri. - Del.) has held that there is no bar under Section 11B for payment of refund by cheque/cash in cases where the original payment of duty was from the Modvat/Cenvat account and the assessee ceased to exist as a manufacturing unit and has no Cenvat account into which refund can be credited. Similarly, the Tribunal in the case of CCE v. Omkar Textiles - (Tri.) observed that where the assessee’s factory was closed before the allowance of Modvat credit by Tribunal and utilization of credit was prevented due to initiation of proceedings by Department, the assessee entitled to cash refund. In the case of Allampally Brothers Ltd. v. CCE, Cochin - (Tri. - Bang.), refund of duty paid through Cenvat credit was allowed to be given in cash inasmuch as the assessee stopped its manufacturing activities. However, such refund by cash was allowed to the extent of duty paid in PLA during that particular period.
7. As against above lots of decisions in favour of the assessee there is contra views as reflected in the following decisions :-
(i) TI Cycles of India v. CCE, Madras - (Tri.) - Refund of duty amount paid by debit to RG account is to be credited in the same account and not paid in cash or by cheque.
(ii) CCE, Chennai v. Rajashree Cements - (Tri. - Chennai)
(iii) Purvi Fabrics & Texturise (P) Ltd. v. CCE, Jaipur-II - (Tri. - Del.)
8. Detailed reading of the above judgments, leads in to the fact that wherever the assessee was unable to utilize the credit on account of objection raised by the Department or actions taken by them by way of initiation of proceedings or paid duty out of modvat account at the Department’s insistence, and for that reason, he had to pay duty in cash or out of the PLA, they would be entitled to refund of that credit in cash, on the dispute being ultimately settled in their favour. In the decisions holding that such refund in cash is not possible, it has been observed that there is no provision allowing refund of such credit in cash. However, we are not in agreement with the above proposition for the simple reason that there is also express no bar in the modvat Rules to that extent. We have to keep in mind that it is not the refund of unutilized credit, but the credit which has been used for payment of duty at the insistence of the revenue or has been reversed because the Department was of the view that the same is not available for utilization. This is a simple and basic principle of equity, justice and good conscience. Had the Department not prevented the assessee from utilizing the credit otherwise available to him, they would have been in a position to use the same towards payment of duty on their final product, which obligation they had to discharge from their PLA account. As such, on the success of their claim subsequently, if the assessee is maintaining Modvat credit and is in a position to use the same for future clearances, it should be normally be credited back in the same account from where it was debited i.e. RG-23A Part II account. However, if an assessee is not able to use the credit on account of any reasons, whatsoever (which may be closure of his factory or final products being exempted, etc.) the refund becomes admissible in cash or by way of credit entry in PLA to the extent duty paid in cash or out of PLA during the relevant period.
9. On the same basic principles of equity, justice and good conscience, if such refund in cash makes the assessee enrich because during the period when the dispute was pending, they had not paid any duty in cash and as such, the debit entry in Modvat account would have made no difference, as the credit would have been lying unutilized only in the account, such credit, cannot be refunded in cash.
10. In view of the foregoing discussions, we hold that if denial of credit has compelled an assessee to pay duty out of PLA, the refund of the same would be admissible in cash to the extent of payment of duty in cash during that period. However, if no cash payments towards duty were made through PLA and the credit would have remained unutilized in the account books, such credit cannot be allowed by way of cash.
11. By applying the above ratio of law as arrived at by this Bench to the fact of the instant case, we find that the debit entry in credit account was made by the appellants on 23-11-2000, the Central Excise registration was surrendered by them in September 2000, i.e. before making of debit entry in RG-23 account. As such, even if the amounts towards duty would not have been debited by them in the said account, the same would have been remained unutilized. As such, on the success of their appeal before the Commissioner (Appeals), they cannot claim the refund of the same in cash, inasmuch as on account of such debit entry, they have not discharged any duty out of PLA. If the said refund is granted to the appellants by way of cash, the same would amount to making him unjustifiable enrich. It is well settled principles of law that what cannot be done directly should not be allowed to be done indirectly. On surrendering of their licence, the appellants was not allowed to claim the refund of the unutilized credit in the Modvat account, the same would have lapsed. As such, utilization of the same towards payment of disputed demand of duty, after surrendering of their registration, has not led to a situation where the assessee was compelled not to use the credit for regular clearances and had to make payment from PLA. As such, in this case we find that the refund in cash is not to be allowed.
12. The appeal papers are returned to the original referral Bench for disposal of appeal.
(Pronounced in Court on 21-8-06)
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