Archana Wadhwa, Member (J)

1. Referral Bench, after taking note of divergent views of the Tribunals 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 appealing for the revenue.

3. We have taken note of various decisions of Tribunal in the case of DCM Data Products v. CCE, New Delhi , 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 judgment 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 , 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 However, in the meanwhile notification was rescinded by the Government and, hence the assessee could not claim set off of duty.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 assessees 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 Courts decision in the case of Deccan Sales Corporation v. R. Parthasarthy , the Tribunals decision in the case of Andhra Pradesh Paper Mills Ltd. v. CCE and Allahabad High Court order in the case of Wimco Ltd. v. UOI . Reliance was also placed upon another Tribunals decision in the case of Hindustan Lever Ltd. v. CCE 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 Honble Supreme Court as reported in .

5. Similarly in the case of Sandoz (India) Ltd. v. CCE , 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 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 departments initial refusal and/or delay. In the case of MRF Ltd. v. CCE , 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 Honble Supreme Court as reported in 1996 (82) ELT A151 (SC).

6. Tribunal in the case of CCE v. Bombay Burmah Trading Corporation Ltd. 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 2002 (148) ELT 461 (Tri.) observed that where the assessees 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 2005 (192) ELT 650 (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 - 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

(iii) Purvi Fabrics & Texturise (P) Ltd. v. CCE, Jaipur-II

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 departments 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., 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)