PREFACE
Under the erstwhile Central Excise regime, Section 11B of the Central Excise Act, 1944 read with Rule 5, Rule 5A and Rule 5B of the Cenvat Credit Rules, 2004 (‘CCR’) specified situations where cash refund of cenvat credit was allowed to the assessee. However, the situation of closure of factory was not specifically covered under the provisions of the CCR. This led to dispute between the assessee and the revenue. The assessee argues that there was no prohibition under the erstwhile CCR to obtain refund of cenvat credit lying unutilized during the closure of manufacturing unit/factory. Per contra, the department argues that there is no specific provision under the erstwhile CCR. Therefore, refund of cenvat credit cannot be granted to the assessee. There are several judicial precedents on the issue, some in favor of the assessee and some in favor of the revenue. It is pertinent to note that this issue has gone up to the Supreme Court, yet, there is no finality. The issue, once again, came under the lens, when the Division Bench of CESTAT, Mumbai gave divergent views on the issue in the case of ATV Projects India Ltd. vs. Commissioner of Central Excise & Service Tax – Excise Appeal No. 87084 of 2019[TS-543-CESTAT-2021-EXC].
JUDICAL PRECEDENTS
Before dwelling in to the analysis of the order of CESTAT Mumbai, in case of ATV Projects India Ltd. (supra), it is important to discuss the important judicial precedents on the issue of refund of cenvat credit on account of factory closure.
Precedents in favor of the assessee
1. The issue of cash refund of unutilized cenvat credit on account of factory closure first came up before the High Court of Karnataka in the case of Union of India vs. Slovak India Trading Co. Pvt. Ltd. – 2006 (Kar). The Court held that as there is no express prohibition on cash refund of unutilized cenvat credit on account of factory closure in terms of Rule 5 of the Cenvat Credit Rules, 2002, the assessee is entitled for such refund.
The Supreme Court in its decision reported at 2008 (SC) maintained the above judgment of the High Court by observing that the Ld. Additional Solicitor General appearing for the Union of India had fairly conceded that the decisions of the Tribunal, which were relied upon by the Tribunal, for allowing the cash refund of cenvat credit, had not been appealed against.
2. The Bombay High Court in the case of CCE v. Jain Vanguard Polybutylebe Ltd vs. – 2010 (Bom), relying on the above decision of the Supreme Court and the Karnataka High Court, also allowed cash refund of unutilized cenvat credit on account of factory closure. The said order was challenged before the Supreme Court. The Supreme Court, vide order reported at 2015 (SC), dismissed the appeal of the Department. However, question of law was left open. In other words, the Supreme Court left the legal issue unanswered in the above matter. This led to opening of a pandora’s box again in the case of Gauri Plasticulture Pvt Ltd vs. CCE –– 2019 (Bom).
3. The above issue also came up before the Rajasthan High Court in the case of Welcure Drugs & Pharmaceuticals Ltd vs. CCE – 2018 (Raj).The Court, relying on the decision of Karnataka High Court in Slovak India (supra),allowed cash refund of unutilized cenvat credit on account of factory closure.
Precedents in favor of the Revenue
1. A reference was made to the Larger Bench of the Tribunal against the maintainability of refund of unutilized/accumulated cenvat credit on closure of unit in the case of Steel Strips v. Commissioner – 2012 (Tri. – LB). The Tribunal observed that absence of express grant in statute does not imply ipso facto entitlement to refund and accordingly, held that when right to refund does not accrue under the law, claim thereof is inconceivable.
2. The Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra), observed that SLP against Slovak India trading Co Pvt Ltd (supra) was not dismissed by recording reasons and merit but was dismissed only on the basis of conceding statement made by the Ld. Additional Solicitor General. Therefore, the Court held that the decision of Supreme Court in the above case cannot be read as a declaration of law under Article 141 of the Constitution of India.
Further, the High Court observed that in the case of Jain Vanguard Polybutylene Ltd (supra) the Supreme Court, while dismissing the appeal, left the question of law open. Therefore, the view of the Tribunal does not merge with dismissal of the SLP in the case of Slovak India Trading Pvt Ltd (supra). Thus, the principle of doctrine of merger has also no application to the case.
DOCTRINE OF MERGER AND DISMISSAL OF SLP
Doctrine of Merger is a common law doctrine which is founded on the principles of propriety in the hierarchy of justice delivery system. The underlying logic of Doctrine of Merger is that there cannot be more than one decree or an operative order governing the same subject-matter at a given point of time.
In other words, if the order of the lower court is modified, reversed or affirmed by the superior court in an appeal or revision, the decision of the lower court merges with the decision of superior court and it is the decision of superior court which subsists, remains operative and is capable of enforcement in the eye of law.
In Kunhayammed vs. State of Kerala – 2001(SC), the Supreme Court held that an order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. However, if the order refusing the leave to appeal is a speaking order i.e., the order gives reason as to why the leave was not granted by the Supreme Court, such speaking order would be law as construed and contained under Article 141 of the Constitution of India.
QUESTION OF LAW LEFT OPEN
In Jain Vanguard Polybutylebe Ltd (supra), the Supreme Court left the question of law open. The Gujarat High Court had an opportunity to deal with the expression “question of law kept open” in Collector v. Liquidator, Petrofills Cooperative Ltd [Misc. Civil Application (For Review) No. 1412 of 2015 in SCA No. 4353 of 2008, decided on 23-10-2015 (Guj)] where one of the issues before the High Court was whether the High Court could reconsider a decision if the Supreme Court kept the “question of law open.” The Gujarat High Court, relying on its previous decision in CIT v. Itegra Engg India Ltd. – 2013, held that it was only the Supreme Court that could reconsider the question of law in the future.
ANALYSIS OF ATV PROJECTS INDIA LTD. CASE
The authors now analyze the present case i.e. ATV Projects India Ltd. (supra), wherein, the Division bench of CESTAT Mumbai took divergent views. The vital issue before the Tribunal was not that whether the cash refund of unutilized cenvat credit on account of factory closure is allowed but, whether to follow the order as passed the Bombay High Court or to follow the principle as set in Slovak India Trading Co Pvt Ltd (supra) by the Supreme Court, since, there is a distinct finding in the order of Gauri Plasticulture Pvt Ltd (supra) that Judgment of Supreme Court in Slovak India Trading Co Pvt Ltd (supra) is not a declaration of law under Article 141 of the Constitution of India.
Brief Facts
The appellant had filed an application for refund of accumulated cenvat credit on account of closure of factory. However, the same was rejected by the Ld. Adjudicating Authority and the Ld. Commissioner (Appeals) by relying on the Judgment of Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra).
Contentions of the Appellant and the Revenue
The appellant contested that the Ld. Commissioner (Appeals) was incorrect in rejecting the refund claim of the appellant as the Ld. Commissioner (Appeals) failed to abide by the principle of judicial discipline by not following the Judgment of Supreme Court in the case of Slovak India Trading Co Pvt Ltd (supra).
The Revenue contested that the judgment of the Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra) is applicable to the present case and therefore, the order of Ld. Commissioner (Appeals) shall be upheld.
Divergent view of the Tribunal in the present case
Judicial Member:
The Judicial Member observed that:
- The Supreme Court in the case of Kunhayammed vs. State of Kerala – 2001 (SC) held that if the Supreme Court has refused leave to appeal with reason, whether express or implied, then, the implication of that order is that it takes away the jurisdiction any other court on point of fact or law and attracts the applicability of Article 141 of the Constitution of India.
- The Supreme Court in the case of Gangadhara Palo vs. Revenue Divisional Officer – 2012 (SC) observed that SLP if dismissed with reasons, however meagre (even one sentence) there is merger of orders.
- The Judgment of the Supreme Court in the case of Slovak India Trading Co Pvt Ltd (supra) can only indicate and establish the fact that law on the subject had attained finality through series of Tribunal decisions and has been set at rest in view of it remaining unchallenged in the appellate forum.
- The judgment of Supreme Court in Gangadhara Palo (Supra) was not brought to the knowledge of the Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra).
In view of the above observations, the Judicial Member held that the decision of Supreme Court in the case of Slovak India Trading Co Pvt Ltd (supra) will have binding effect on all Courts, Tribunal etc. in view of the mandate in Article 141 of the Constitution of India.
Technical Member:
The Technical Member observed that:
- The decision of the Tribunal in Slovak India Trading Co (Pvt) Ltd (supra), without referring to the facts of the case in hand and granting relief on the basis of certain decisions, is sub-silento and could not have been binding precedent.
- In various cases relied upon by the Appellant, the facts of the matter were distinguishable in as much as the issue under consideration before the tribunal in these cases was refund of the duty paid by making the debit form the MOVAT Credit account after moving out of the MODVAT Scheme. It was not the case for refund of the amount available as balance in the MODVAT Credit Account.
In view of the above observations and relying on the judgment of High Court of Bombay in the case of Gauri Plasticulture Pvt Ltd (supra), the Technical Member held that judgment of the Karnataka High Court in Slovak India Trading Pvt Ltd (supra) would not merge with the Supreme Court judgment.
Reference to Third Member (President):
In view of the above divergent opinions of the Members, the matter has now been referred to the Third Member (President) to consider and give decision on various issues inter-alia, whether the Judgment of Supreme Court in the case of Slovak India Trading Pvt Ltd (supra) will have binding effect or not.
CONCLUSION
The issue which was once settled in favor of the Assessee was disturbed by the Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra). The Tribunal in the present case had divergent views because one Member chose to follow the judgment of Bombay High Court and other chose to follow the judgment of Supreme Court.
The Supreme Court has admitted the appeal challenging the judgment of the Bombay High Court in the case of Gauri Plasticulture Pvt Ltd (supra). Thus, the issue will be pending before the Third Member (President) of the Tribunal and also with the Supreme Court at the same time.
While the stakeholders hope for a favorable decision, it will be interesting to see the outcome on the following issues:
- Whether the Judgment of Karnataka High Court in Slovak India Trading Pvt Ltd (supra) merged with the Judgment of Supreme Court
- Whether the Judgment of Supreme Court in Slovak India Trading Pvt Ltd (supra) has binding effect in terms of Article 141 of the Constitution of India?
- Whether the Bombay High Court was correcting in deciding the issue on the basis of “question of law left open” by Supreme Court in the case of Jain Vanguard Polybutylebe Ltd ?
The answers to the above issues will decide whether the issue is settled in favor of the Assessee or the Revenue.
The Article was authored by Mahesh Raichandani, Advocate and Deepak Khokhar, Advocate
