[Order per : D.N. Panda, Member (J)]. - Following question was referred to the Larger Bench finding non-existence of provisions in the Central Excise Act 1944 (hereinafter referred to as “the Act”) for refund of unutilized amount of Modvat credit in cash for the period December, 1997 to September, 1999 is as under :

“whether in cases where either on account of coercion by the Department or otherwise, the assessee pays the duty through PLA account, in spite of having sufficient balance in the modvat/cenvat credit, on the factory or unit becoming inoperative and there being no likelihood of restarting the production, can such assessee be entitled for refund of the credit amount under the provisions of law in force.” [Ref : Para 30 of the referral order].

1.1 The referring bench was of the opinion that law does not permit cash refund of unutilized Modvat Credit during the material period for which they were unable to subscribe to the view expressed by the earlier Larger Bench in Gauri Plasticulture (P) Ltd. v. CCE, Indore - (T.-LB.). Judicial discipline therefore required, to refer the matter in that regard to the Larger Bench to decide the issue on the touch stone of law. The referring Bench while hearing the matter also noticed that the assessee had made allegation that it was required to make huge deposit in its PLA under coercion and required to pay duty out of such account being allowed to utilize its credit remaining in the Modvat Account. But such allegation did not get appreciation for lack of evidence. For the same reasons, there was also a similar denial by the learned first Appellate Authority.

1.2 Without citing the statutory provisions in the Act permitting re-fund of unutilized Modvat credit in cash, mere plea was raised by the assessee that Modvat credit having been remained unutilized at the time when the unit became inoperative and there was no possibility of restarting process in the factory, refund thereof was permissible relying on the decision of Hon’ble High Court of Karnataka in the case of UOI v. Slovak India Trading Co. (P) Ltd. - (Kar.) = (Kar.). According to the Assessee, Rule 5 of the Central Excise Rules, 2002 was invokable on the ground that the decision of Hon’ble High Court of Karnataka was confirmed by the Apex Court. But the Referring Bench observed that substantive provision of the statute in respect of refund was not subject matter of scrutiny in the said judgment and appeal preferred by Revenue was dismissed on the concession of learned Additional Solicitor General on the ground that the decisions in Eicher Tractors v. CCE, Allahabad, reported in , Shree Prakash Textiles (Guj.) Ltd. v. CCE, Ahmedabad, reported in ; CCE, Ahmedabad v. Babu Textile Industries, reported in ; and CCE, Ahmedabad v. Arcoy Industries, reported in , which were relied upon by the Tribunal while deciding the matter, were not appealed against by Revenue.

1.3 The Referring Bench noticed that the decision of the Larger Bench in Gauri Plasticulture (P) Ltd. v. CCE, Indore - (T.-LB.) permitting refund of unutilized credit, in cash was without examination of the law relating to Modvat and object of Modvat credit procedure. Therefore, according to referring Bench, in absence of provision under the Act for cash refund of the unutilized amount in Modvat credit, that is not permissible (Para 28 of Referral order).

1.4 The Referring Bench also, noted in para 32 of the order that the Hon’ble High Court of Calcutta in the case of Rasoi Ltd. v. Union of India - (Cal.) has held that in the claim of scheme of provision of law there is no provision for refund by cash in relation to money credit scheme. The Bench was, therefore, of the view that the principle of law laid down by the Hon’ble Calcutta High Court denies refund.

2. On the aforesaid background, the Referring Bench was of the honest belief that the decision of the Larger Bench in Gauri Plasticulture (P) Ltd. (supra) was an impediment to arrive at a conclusion contrary to the decision made in that case. Thus, this reference arose for answer by the Larger Bench on the question depicted at the outset.

3. Both sides were heard. The arguments made by both sides are summarized as under :-

A. Arguments on behalf of assessee

3.1 It was contention on behalf of the assessee that once a decision is given by the Tribunal that should be followed as a matter of judicial discipline in view of the Tribunal’s decision in the case of Madura Coats v. CCE, Bangalore - (Tribunal). So also reliance was placed on the decision of the Hon’ble Supreme Court in the case of East India Commercial Co. Ltd. v. C.C., Calcutta - (S.C.). Reliance was also placed on the decision of the Hon’ble High Court of Karnataka in the case of UOI v. Slovak India Trading Co. Pvt. Ltd. reported in (Kar.) submitting that the same has been affirmed by the Hon’ble Apex Court as reported in (S.C.).

3.2 It was contended that when the Tribunal’s decision is contrary to the High Court’s decision the Tribunal is bound to follow the decision of the High Court and the High Court is bound to follow the decision of the Supreme Court for which reliance was placed on the decision in the case of CCE, Meerut v. Stallion Shox Ltd., reported in (Tribunal).

3.3 Relying on para 17 of the decision in Union Carbide India Ltd. v. CCE, Calcutta-I, reported in (Tri.) it was argued that by no interpretative process the deliberate design of the rule making authority can be frustrated nor words and expressions disregarded as otiose. Rule 5 permits refund and there is no bar in law to grant refund of unutilized Modvat credit when the inputs have undergone manufacture. Whatever may be the reason of accumulation of input credit that remaining unutilized is to be refunded. The precedence of Tribunal in respect of refund of unutilized credit has been upheld by the Apex Court. That has entitled the assessee to press their refund claim. For such submission reliance was placed on the decision in the case of Hutch Associated Cement Companies Ltd., Jabalpur v. Collector of Central Excise, Indore - (Tribunal).

3.4 It was also argued that when the Revenue did not appeal against the decisions in Eicher Tractor - , Shree Prakash Textile - , Babu Textile Industries - , and Arcoy Industreis - (Ref. para 13 of referral order), correctness of judgment of the Slovak India Trading Co. Pvt. Ltd. - (Kar.) cannot be questioned by Revenue before Larger Bench. To submit so, reliance was placed on the decision of the Hon’ble Supreme Court in the case of Berger Paints India Ltd. v. Commissioner of Income Tax, Calcutta, reported in (S.C.).

3.5 It was further submitted that there is no bar to give cash refund when an assessee ceases to exist and manufacturing operation comes to an end and there exists no Modvat account into which refund can be credited following the decision in CC&CE, Bhopal v. Bombay Burmah Trading Corpon. Ltd., reported in (Tri.- Del.). Reliance was also placed on the decision of Rama Industries Ltd. v. CCE, Chandigarh reported in 2009-TIOL-100-HC-P&H-CX to submit that when Hon’ble High Court of Karnataka has decided to grant refund under Rule 5 of the Cenvat Credit Rules, 2002 and that ends litigation of Revenue.

B. Arguments on behalf of Revenue

4. Learned D.R. appearing on behalf of Revenue submitted that the Modvat procedure was governed by Central Excise Rules, 1944 (hereinafter referred to as “the 1944 Rules”). Adjustment of input credit was permitted against duty liability on manufactured goods by process of law. When law grants adjustment, that should also govern refund, if any to be made, when input credit remained unutilized. There was no compulsion to make payment of excise duty through the PLA if there is eligibility to Modvat credit adjustment. Plea of refund does not arise without sanction of law without mandate and refund is granted by an order for that purpose. Through prescribed procedure of law, refund whether due or not is examined and ordered accordingly. Revenue is not zealous to keep any money with it what is not due to it. Similarly any legitimate due to the assessee is not denied by the government. In absence of statutory provision to grant refund of the input credit no procedure can be evolved or moulded by Courts or Tribunal or statutory Authority to order so. Had there been a clear mandate of law to make refund of unutilized Modvat credit there would not have arisen difficulty to entertain such claim. The authorities are not empowered to devise ways and means or lay down procedure to entertain a claim contrary to law. The Larger Bench decision relied upon by Assessee is of no consequence since that decision has failed to consider scheme of Modvat credit and has exceeded its advisory and consultative jurisdiction exercising powers of an equity Court not vested with Tribunal.

4.1 Revenue’s further argument was that courts cannot compel formation of policy decision to suit to a particular manufacturer or claim and accumulated credits in the Modvat account is not allowable to be refunded in cash following the decision of the Apex Court in Kusum Products Ltd. v. UOI - . Plea of the assessees that they are entitled to refund of the credit under Rule 5 of Cenvat Credit Rules, 2002 is baseless in absence of the mandate in the 1994 Rules.

4.2 The 1994 Rule had provision for refund of the input credit subject to such safeguard, conditions and limitations as specified by Central Government by notification where the input credit remained unutilized due to final product being cleared for export under bond or letter of undertaking as the case may be, or used in the intermediate product cleared for export and for any reason adjustment of input credit is not possible. But the assessees in the batch of reference had no such case.-According to law in force during the material period refund of input credit was deniable when manufacturers avail draw back allowed under the Customs Law and Central Excise Law or claim of rebate of duty is made under Central Excise Rules, 2002. The provisions of Rule 5 of Cenvat Credit Rules, 2002 cannot be equated with the Modvat procedure of the 1944 Rules. Under 1944. Rules there was no refund provision at all as claimed in the present reference. Therefore, claim of the assessees was devoid of merit and earlier Larger Bench overlooking statutory provision, has advised refund in breach of law.

4.3 According to Revenue, claim of the assessees is that because Revenue’s appeal was dismissed they have a right to refund and there is no warrant for present reference to Larger Bench is inconceivable for the reason that the earlier decision was not rendered testing the law in force during the relevant period. Such reason warrants reference to resolve the controversy. Therefore, present reference is rightly made for answering the question of testing the scheme of Modvat law. According to learned D.R., Revenue’s pleading is based on the ratio laid down in the judgment of the Hon’ble High Court of Bombay in the case of Sandvik Asia Ltd. v. CIT & Ors. - (2004) 267 ITR 78 (Bom.).

4.4 Learned D.R. relying upon the Apex Court judgment in the case of Polstar Electronics (P) Ltd. v. Additional Commissioner, Sales Tax, Delhi, submitted that when the Acts and Rules do not recognize a claim and no provision gives shelter to a claim, that is not at all a legitimate claim under law. Similarly, a claim not flowing from an order passed by the Authority is not entertainable. Refund cannot be claimed as a matter o fright unless recognized by law. Even though Revenue’s appeals were dismissed on concession before the Apex Court, that does not prevent Revenue to plead that in absence of statutory mandate, a claim entertained shall be illegal. So also, relying on the decision of Hon’ble High Court of Bombay in the case of Coral Cosmetics Ltd. v. UOI - (Bom.) = (Bom.) learned D.R. submitted that when there was no provision in the 1944 Rules, refund is not permissible invoking Rule 5 of Cenvat Credit Rules, 2002, since the Assessees in the present reference are governed by 1944 Rules.

4.5 Learned D.R. relying on the judgment of the Apex Court in the case of Eicher Motors Ltd. v. UOI - (S.C.) submitted that Apex Court has not permitted any claim to be construed as vested right which did not arise under the law. Relying on the decision of the Tribunal in ICI Ltd. v. CCE, Kolkata - , he also submitted that the Tribunal cannot function as a Court of equity and has to strictly apply principles of taxation within the parameters of the statute. There is no question of any equity and good conscience to govern a fiscal legislation. Such statutes, by strict letters of law mandate taxation and similarly exonerates tax by its specific letters. So also refund is granted under statutory provisions. Thus, claim of the assessees in the reference not based under the provisions of the Act or 1944. Rules are bound to fail. Unless a right is conferred by law to get refund of the nature claimed in the present reference, that should be extinct. The Tribunal being a creature of the statute cannot go beyond the statute to entertain a claim not known to law. It cannot assume wider jurisdiction to grant relief without the powers of a Court of equity. To submit so, he relied on the decision of the Tribunal in the case of Supreme Washers (P) Ltd. v. CCE, Pune - (Tri.). Thus earlier decision of Larger Bench merely basing on equity and good conscience is contrary to the basic foundation of excise Jurisprudence.

4.6 Learned DR relied on the judgment of Nahar Industries Ltd. v. Union of India - (P & H) to submit that an assessee is not entitled to refund of duty in cash regardless of mode of payment of the same unless authorized by law for such refund. Similarly reliance was placed on the decision of Hon’ble High Court of Calcutta in the case of Rasoi Limited v. Union of India - (Cal.) to argue that if an assessee is unable to utilize accumulated credit, in absence of provision for cash refund of that credit; same cannot be granted by Court. It was further relied on the decision of the Tribunal in the case of CCE, Chandigarh v. Rama Industries - 2009 (91) RLT 241 (CESTAT - DEL) = (Tribunal) = (Tribunal) to submit that credit in Cenvat credit has to be generally used towards payment of duty on final product and refund in cash from Cenvat credit account is an exception and the only exception is in respect of credit attributable to input which has gone into export product.

Answer to the Question Referred

Scheme of Modvat

5.1 Scheme of Modvat dealing with input credit was subject matter of analysis in Ichalkaranji Machine Centre Pvt. Ltd. v. Collector of Central Excise, Pune (S.C.). It has been held that Modvat is basically a duty-collecting procedure, which aims at allowing relief to a manufacturer on the duty element borne by him in respect of the inputs used by him. It was introduced w.e.f. 1-3-1986. The said scheme was regulated under Rules 57A to 57J of Central Excise Rules, 1944. Rule 57A entitled a manufacturer to take instant credit of the central excise duty paid on the inputs used by him in the manufacture of the finished product, provided that the input and the finished product were excisable commodities and fell under any of the specified chapters in the tariff schedule. Under Rule 57G, every manufacturer was required to file a declaration before the jurisdictional Assistant Collector, declaring his intention to take Modvat credit after paying duty on the inputs. The object behind Rule 57A read with Rule 57G and Rule 57-I was utilization of credit allowed towards payment of duty on any of the final products in relation to manufacture of which such inputs were intended to be used in accordance with the declaration under Rule 57G. Rule 57-I referred to consequences of taking credit wrongly.

Taxation Considerations Stem from Administrative Experience

5.2 Taxation consideration may stem from administrative experience and other factors of life and not artistic visulalisation or neat logic and so the literal, though pedestrian interpretation must prevail - Ref : Martand Dairy and Farm v. Union of India, AIR 1975 SC 1492, p. 1494: (1975) 4 SCC 313. Courts are not entitled to fill any lacuna in any Act much less in a Taxing Act, but the courts will also not stretch a point in favour of the tax-payer to enable him to get by his astuteness the benefit which other tax-payer do not obtain - Ref : Yeshwantrao v. CWT, AIR 1967 SC 135, pp.140, 141.

Euitable Considerations are Entirely out of place while interpreting Tax Laws

5.3 Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity (Ref : State Bank of Travancore v. Commissioner of Income Tax (1986) 2 SCC 11, p.68. : AIR 1986 SC 757). It has also been said that if taxing provision is “so wanting in clarity that no meaning is reasonably clear, the court will be unable to regard it as of any effect.” [Ref : IRC v. Ross and Coulter, (1948) 1 All ER616, p.625 (HL); referred to in Gursahai v. CIT, AIR 1963 SC 1062, p. 1064 : (1963) 3 SCR 893.]. It has also been held that in interpreting taxing statute, equitable considerations are entirely out of place nor can taxing statutes be interpreted on any presumptions or assumptions. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency. [Ref : Sales Tax Commissioner v. Modi Sugar Mills, AIR 1961 SC 1047, p. 105, CIT v. M. G. Mills - AIR 1971 SC 2434, p. 2435].

Construction Preserving Workability and Efficacy should be preferred

5.4 In construing provisions designed to prevent tax evasion, if the Legislature uses words of comprehensive import, the courts cannot proceed on an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature - Ref : C.A. Abraham v. ITO, Kottayam, AIR 1961 SC 609, p. 612. The principle behind this rule is that an enactment designed to prevent fraud upon the revenue “is more properly a statute against fraud rather than a taxing statute, and for this reason properly subject to liberal construction in the Government favour” - Ref : CRAWFORD, Statutory Construction, p. 508. So in interpreting a provision to plug leakage and prevent tax evasion a construction which would defeat its purpose should be eschewed and a construction which preserves its workability and efficacy should be preferred - Ref : Commissioner of Sales Tax, Delhi v. Sri Krushna Engg. Co., (2005) 2 SCC 695, p. 703.

Non-Filing of Appeal by Revenue is not a Bar for Scrutiny in another case

5.5 Doctrine of merger was pressed into service by the ld. Sr. Counsel Sri Anand appearing on behalf of the Assessee submitting that due to dismissal of Revenue’s Civil Appeals, present reference was unwarranted. For appreciation of Doctrine of merger, it would be beneficial to reproduce Paras 40 - 44 of the judgment of the Hon’ble Supreme Court laying down the law in the case of Kunhayammed v. State of Kerala - (S.C.) as under :

“40. A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the Court, (iv) the conduct of the petitioner having no disentitling him to any indulgence by the Court, (iv) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on. The expression often employed by this Court while disposing of such petitions are - “heard and dismissed”, ‘‘dismissed”, “dismissed as barred by time” and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The Court may apply its mind to the meritworthiness of the petitioner’s prayer seeking leave to file an appeal and having formed an opinion may say “dismissed on merits”. Such an order may be passed even ex-parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither doctrine of merger nor Article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review Jurisdiction conferred by Order 47 Rule 1 of the C.P.C. or any other statutory provision or allowing review of an order passed in exercise of writ or supervisory Jurisdiction of the High Court (where also the principles underlying or emerging from Order 47 Rule 1 of the C.P.C. act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of special leave petition does not take away the Jurisdiction of the court, tribunal or forum whose order forms the subject matter of petition for special leave to review its won order if grounds for exercise of review Jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate Jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the Constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger.

41. Once a special leave petition has been granted, the doors for the exercise of appellate Jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the a same order and at times the orders are quite brief Nevertheless, the order shows the exercise of appellate Jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court.

42 ”To merge” means to sink or disappear in something else; to become absorbed or extinguished; to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; an absorption or swallowing up so as to involve a loss of identity and individuality. (See Corpus Juris Secundum, Vol. LVII, pp. 1067-1068).

43. We may look at the issue from another angle. The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate Jurisdiction over it. If the order impugned before the Supreme Court be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage.

44. To sum up our conclusion are :

(i)      Where an appeal or revision is provided against an order passed by a court. Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.

(ii)     The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage Is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal.

(iii)    Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter.

(iv)    An order refusing special leave to appeal may be a non-speaking order or a speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v)     If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res Judicata in subsequent proceedings between the parties.

(vi)    Once leave to appeal has been granted and appellate Jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.

(vii)   On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Rule (1) of Order 47 of the C. P. C.”

[Emphasis supplied].

5.6 No doubt there are cases where Hon’ble Supreme Court while dismissing Revenue’s Civil Appeal did not go into merits of the issues but had dismissed the appeal only on the ground that there was no appeal by Revenue previously on similar cases. But it has been held by Apex Court in the case of CCE, Raipur v. Hira Cement, reported in (S.C.) = (S.C.) that non-filing of an appeal against an order in any event would not be a ground for refusing to consider the matter on its own merit. Merely because in some cases revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts as has been held in the case of C.K. Gangadharan v. CIT, Cochin, reported in (S.C.) = (S.C.). In Gauri Piasticulture (P) Ltd. (supra) except the claim being permitted under equitable considerations the controversy remained unanswered on the point of law while grant of refund of the nature claimed was not mandate of the Act or the 1994 Rules. The issue, therefore is rightly called for consideration in the present reference on the point of law.

Policy of Refund of Input Credit is Regulated by Statutory Provisions

5.7 A distinction between provisions of statute which are of substantive character and are built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished. An eligibility criteria to get refund calls for a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can be reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the “essence” or the “substance” of the requirements. Like the concept of “reasonableness”, the acceptance or otherwise of a plea of “substantial compliance” depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means “actual compliance in respect to the substance essential to every reasonable objective of the statute” and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed.

Refunds and Exemption are Governed by Rule of Strict Compliance

5.8 Fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted.

Substance and Essence of Statute are Paramount Considerations

5.9 The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the “substance” or “essence” of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the “essence” of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential. In the cases of refund substantial compliance to the law granting refund is sine qua non.

Courts have to decide what the law is but not what it should be

5.10 In a plethora of cases, it has been stated by various judicial pronouncements that where, the language is clear, the intention of the legislature is to be gathered from the language used. It is not the duty of the court either to enlarge the scope of legislation or the intention of the legislature, when the language of the provision is plain. The court cannot rewrite the legislation for the reason that it had no power to legislate. The court cannot add words to a statute or read words into it which are not there. The court cannot, on an assumption that there is a defect or an omission in the words used by the legislature, correct or make up assumed deficiency, when the words are clear and unambiguous. Courts have to decide what the law is and not what it should be. The courts adopt a construction which will carry out the obvious intention of the legislature but cannot set at naught legislative judgment because such course would be subversive of constitutional harmony [See : Union of India & Anr. v. Deokinandan Aggarwal].

No person has vested right in any course of procedure

5.11 No person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner laid down by law. He has no right than to proceed according to the mandate of the statute governing the subject. Claim of refund is not a matter of right unless vested by law. That would depend upon the object of the statute and eligibility. The purpose for which law has been made and its nature, the intention of the legislature in making the provision, the relation of the particular provision to other provisions dealing with the subject including the language of the provision are considerable factors in arriving at the conclusion whether a particular claim is in accordance with law. No injustice or hardship can be raised as plea to claim refund in absence of statutory mandate in that behalf and no equity or good conscience influence fiscal courts without the same being embedded to the statutory provisions.

5.12 The question before the Larger Bench in Gauri Plasticulture (P) Ltd. - (Tri.-LB.) was whether duty debited in RG23A part II can be refunded in cash when the refund becomes otherwise due. The Larger Bench without recording the submissions of either side merely discussed outcome of various decisions beginning from Para 3 to 7 of the order and came to the conclusion in Para 10 of the reported order that if denial of credit has compelled an assessee to pay duty out of PLA, the refund of the same would be in cash to the extent of payment of duty in cash during that period. It was further held that if no cash payment towards duty were made through PLA and credit would have remained unutilized in the account books, such credit cannot be allowed by way of cash.

5.13 While arriving at the aforesaid conclusion, the Larger Bench in Para 11 of the order recorded the fact that in the case before them debit entry in credit account was made by the Appellants on 23-11-2000 while central excise registration was surrendered by the assessee in September 2000 i.e., before making the debit entry in RG-23 account. Further observation of the Bench was 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 enrich him unjustifiably. 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 were not allowed to claim the refund of the unutilized credit in the Modvat account, and 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.

5.14 The Larger Bench also discussing various pronouncements in Para 3 to 7 of the order, viewed the matter in Para 8 as under :

“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.”

5.15 The decision made in Gauri Plasticulture (P) Ltd. was called for on the question before the Larger Bench as framed in Para 1 thereof. At the cost of repetition it may be stated that the question before Larger Bench in that case was “whether duty debited in RG-23 A Part II can be refunded in cash, when the refund becomes otherwise due” [Emphasis supplied]. But the conclusion in that case as per Para 10 was 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. Such decision does not appear to have flown from the question appearing in Para 1 of the Larger Bench decision as stated aforesaid. Therefore such a decision has no attributes of a precedence not laying down the law for which present reference was warranted. It may further be stated that in Gouri Plasticultures case the question had presupposed that refund was otherwise due. But how such due arose, that does not come out from any of the paragraphs of the order reported in (Tri.-LB.). The present reference is not on the premise of refund otherwise due for which that has rightly been made for answer by Larger Bench.

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.

5.17 The question referred in the Referral Order is thus answered as above.

5.18 Registry is required to place the respective cases before appropriate Bench to decide the Appeals.

(Pronounced in the open Court on 13-5-2011)