Amendment in Refund scheme under Rule 5 of Cenvat Credit Rules, 2004

Amendment in Refund scheme under Rule 5 of Cenvat Credit Rules, 2004

Prepared By: -
Preeti parihar
Ankit Palgauta

Rule 5 of Cenvat Credit Rules, 2004, prior to Budget, 2012, allowed the refund of duty/service tax paid on any input or input service which is used –

-                     in the manufacture of final products which is exported; or
-                     in the intermediate product cleared for export; or
-                     in providing output service which is exported.

The refund of input duty and input service tax is allowed only if the manufacturer/exporter is unable to utilize that credit –

-                     in paying the central excise duty on goods cleared in home country; or
-                     in paying the Service tax on output service,

Also, the refund is not allowed if the exporter avails the drawback or claims the rebate of duty or service tax.

But there was condition that there should be correlation between the input and input services used for manufacture of final product. Thus, the exporter has to tell the inputs used in manufacture of final product and duty on the same. It is very cumbersome procedure.

Amended Rule 5 of Cenvat Credit Rules, 2004-

Budget, 2012 has amended the said rule 5 of Cenvat Credit Rules, 2004. The amended rule 5 says that the refund of Cenvat Credit will be allowed to –

(i)                 A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or
(ii)               A service provider who exports an output service without payment of service tax.

The new rule says that the refund shall be allowed on the basis of following formula:-

Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit
                                                                Total turnover
Where,-

(A) Refund amount means the maximum refund that is admissible;
(B)   Net CENVAT credit = Total CENVAT credit availed on inputs and input services – Reversal under rule 3(5C);
(C) Export turnover of goods = Total value of final products + intermediate products exported under bond or letter of undertaking;
(D) Export turnover of services‖ means the value of the export service calculated as follows:-
Export turnover of services = payments received for export services + export services whose provision has been completed for which payment was received in previous period – advances received but service not provided.
(E)   Total turnover = Value of all clearances including exempted goods, dutiable goods and excisable goods exported + value of export services + value of domestic services + As such removal of inputs.

Also, the refund may be claimed under this rule prior to commencement of the CENVAT Credit (Third Amendment) Rules, 2012 and within one year from such commencement.

Further, the condition of non availment of drawback or rebate has been kept intact.

Net Effect of amendment-

This amendment has simplified the procedure of claiming the refund under Rule 5 of the Cenvat Credit Rules, 2004. Under old Rule, the refund was allowed only if the manufacturer-exporter/service-exporter was unable to utilize the credit. This condition is now removed. However, there would be negligible effect of the same as no prudent man will file the refund of the credit which he can utilize in paying the excise duty or service tax. Further, the Cenvat credit attributable to export goods/export services was to be calculated while filing the refund claim. This was bit cumbersome. We have come across the situations when the assessee has refused to file the refund due to such a cumbersome procedures. The exporter should know that particular batch of raw material is used in particular batch of finished goods. Further this particular batch of raw material was purchased from particular invoice of the supplier. This created many problems. Further, the co-relation of input service was impossible. But the department always insisted on the same.

Now a simple formula is prescribed and credit is allowed proportionately on the basis of quantum of goods/services exported. This amendment is going to receive a warm well come from the exporters.

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Amendment in Refund scheme under Rule 5 of Cenvat Credit Rules, 2004

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