CENVAT credit availment is a vested right: CESTAT allows refund of unutilized credit of cess

The appellant is engaged in the business of manufacture of clinker and cement. Prior to 01.03.2015, cess was leviable on goods manufactured by the appellant, in addition to excise duty, and the appellant availed CENVAT credit under the provisions of the CENVAT Credit Rules 2004 on cess paid on procurement of goods and services. However, the notification dated 01.03.2015 exempted levy of the cess on all goods falling in the First Schedule to the Central Excise Tariff Act, 19855. Thus, w.e.f. 01.03.2015 only central excise duty was leviable and levy of cess was exempted. The closing balance of the cess as on 28.02.2015 could not consequently be utilised by the appellant post 01.03.2015 and it was carried forward in the central excise returns. This was for the reason that credit of cess could be utilised for payment of the cess under the Credit Rules and could not have been utilised for payment of excise duty. On introduction of the Central Goods and Service Tax, 2017 Act6 w.e.f. 01.07.2017, the closing balance of the credit on cess appearing in the excise returns filed by the appellant in the month of June 2017 was not carried forward and instead the appellant filed a claim for refund of such balance of Rs. 53,47,491/- of credit on cess on 29.05.2018.

A show cause notice dated 16.07.2018 was, however, issued to the appellant stating therein that the claim appeared to be inadmissible for the following reasons:

(i) The refund claim is incomplete under the provisions of section 11B of Central Excise Act, 1944 as not filed under proper format as prescribed.

(ii) The refund claim is incomplete under the provisions of section 11B of Central Excise Act, 1944 as not accompanied by such documentary evidence to establish that amount of refund claimed was actually paid by them and not provided information in regard to period involved.

(iii) The refund claim appears time barred under section 11B of the Central Excise Act, 1944 as it is filed for accumulated credit of Education Cess & Secondary & Higher Education Cess has been withdrawn w.e.f. 01.03.2015 vide Notification No. 14/2015-CE and 15/2015-CE both dated 0.03.2015.

(iv) The refund claim appears inadmissible as these Cesses have been phased out vide above Notifications and no new liability to pay such Cesses arises, no vested right can be said to exist in relation to the accumulated credit of the past.

(v) The claim for amount of CENVAT credit carried forward in the return relating to the period ending with day immediately preceding the appointed day are governed by Transitional Provisions under section 139 to 142 of Central Goods & Service Tax Act, 2017.

The Assistant Commissioner, by order dated 12.11.2018, rejected the refund claim of the Applicant Citing:

F. No. 96/85/2015-CX.I dtd. 07.12.2015 by CBEC, New Delhi at point B21 clarified as under:-

“It was Governments‟s conscious policy decision to withdraw the Education Cess and Secondary & Higher Education Cess. It is a policy decision to not allow utilization of accumulated credit of education cess and secondary and higher education cess after these Cesses have been phased out. As these Cesses have been phased out and no new liablility to pay such Cess arises, no vested right can be said to exist in relation to the accumulated credit of the past”.

Feeling aggrieved, the appellant filed an appeal before the Commissioner (Appeals). The said appeal was rejected by the Commissioner (Appeals) by order dated 12.06.2019 placing reliance upon the judgement of the Rajasthan High Court in Banswara Syntex Ltd. vs. Commr. C. EX. & Service Tax, Udaipur7. The relevant portion of the order passed by the Commissioner (Appeals) is reproduced below:

“9. The appellant has contended that the credits of Edu. Cess and Secondary & Higher Edu. Cess were rightly & legitimately availed by the appellant before 01.03.2015 when the levy of impugned Cesses was in force, in accordance with the Cenvat Credit Rules, 2004 (in short CCR, 2004) and once the eligibility of such credit was not in dispute, such credit cannot be denied. The appellant has further contended that the vested right of Cenvat credit availed prior to the date of exemption (i.e. 01.03.2015) cannot be taken away unless and until it was expressly provided in any provision of law, rules or notification. Since no such provision has been introduced expressly denying the credit availed in respect of Education Cess and Secondary & Higher Edu. Cess, the same cannot be denied. The appellant has also contended that with introduction of GST law (i.e. 01.07.2017) cess credit of Education Cess and S.H.Edu. Cess became ineligible credit for TRAN-1 and thus they could not transfer the impugned Cess credit to their electronic credit ledger. Thus, they had filed a refund claim on 29.05.2018 which is well within the time limit of one year and the same cannot be considered as time barred.

10. I observed that in the instant case the balance credit of Education Cess and S.H.Edu. Cess as on 30.06.2017 with the appellant being ineligible cess credit the appellant could not have transferred such credit in their electronic credit ledger thorough TRAN-1. The impugned Cesses had been phased out w.e.f. 01.03.2015 vide Notification No. 14/2015-CE & No. 15/2015-CE both dated 01.03.2015.

11. In this regard, I find that the issue has already been discussed in the Tariff Conference held on 28th & 29th October 2015 in which it has been decided that accumulated credit of education cess and secondary & higher education cess, which had been phased out, could not be utilized any further. As far as the claim of refund of unutilized credit of impugned cesses is concerned, I find that the matter has already been decided by Hon’ble High Court of Rajasthan in the case of M/s. Banswara Syntex Ltd. Versus CCE, Udaipur.”

Shri Sparsh Bhargava learned counsel for the appellant made the submission that Refund of the credit could not have been denied to the appellant merely on the ground that such credit was not utilized prior to GST regime. In this connection, reliance has been placed on the decision of the Tribunal in Slovak India Trading Co. Pvt. Ltd. vs. Commissioner of C. Ex., Bangalore8, against which the appeals filed by the department before the Karnataka High Court and the Supreme Court were dismissed. These decisions are reported in 2008 (10) S.T.R. 101 (Kar.) 9 and 2008 (223) E.L.T. A170 (S.C.)10;

Order of Tribunal

25. Learned authorised representative for the Department also placed upon the decision of the Delhi High Court in Cellular Operators Association. This judgment was rendered in a Writ Petition that had been filed for quashing the notification dated 29.10.2015 and for a direction that the credit accumulated on account of cess should be allowed to be utilised for payment of service tax leviable on telecommunication services. The submissions of the petitioner was that the unutilised amount of cess, after it was exempted w.e.f. 01.03.2015, should be permitted to be utilized for payment for payment of tax on excisable goods and taxable services as it was subsumed in the central excise duty which had been raised in 2015. The High Court rejected this contention.

26. In the present case, the plea of the appellant is not for adjustment of the credit on cess amount against payment of excise duty or service tax, but it is for refund of credit accumulated on account of payment of tax on cess. This decision would, therefore, not help the respondent.

27. Learned authorised representative also place reliance upon the notification dated 07.12.2015 issued by CBEC to contend that a policy decision had been taken not to allow utilisation of accumulated credit of cess, after cess had been phased out and it is reproduced below:

“Discussion & Decision

The conference after discussion and briefing from the officers from the Board noted that it was Government conscious policy „decision to withdraw the Education Cess and Secondary and Higher Education Cess. It is a policy decision to not allow utilization of accumulated credit of education cess and secondary and higher education cess after these Cesses have been phased out. As these Cesses have been phased out and no new liability to pay such Cess arises, no vested right can be said to exist in relation to the accumulated credit of the past. The rule and notifications as they exist need to be followed and do not need any amendment.

28. The aforesaid policy contained in the notification dated 07.12.2015 is clearly contrary to the decisions of the High Courts and the Tribunal referred to above and, therefore, cannot be come to the aid of the Revenue.

29. It needs to be noted that CENVAT credit avail is a vested right as has held by the Supreme Court in Eicher Motors and Samtel India.

30. The appellant is, therefore, clearly entitled to the refund of the balance amount of credit of cess and the decision to the contrary taken by the Commissioner (Appeals) cannot be sustained. The order dated 12.06.2019 passed by the Commissioner (Appeals) is, therefore, set aside and the appeal is allowed with consequential reliefs, if any.