Benefit of DFIA scheme – Denial of on ground that cenvat taken on inputs – but inputs neither procured against Authorisation nor imported

PJ/Case Laws/2011-12/1445

Benefit of DFIA scheme – Denial of on ground that cenvat taken on inputs – but inputs neither procured against Authorisation nor imported – whether sustainable?

Case: TTP TECHNOLOGIES PVT. LTD & ORS v/s CCE, BANGALORE-II

Citation: 2009 (92) RLT 757 (CESTAT-Ban.)

Issue:- Benefit of DFIA scheme – Denial of on ground that cenvat taken on inputs – but inputs neither procured against Authorisation nor imported – whether sustainable?

Brief Facts:- Appellants obtained certain inputs, took Cenvat credit and manufactured the final products. The final products were cleared on payment of duty by utilizing the Cenvat credit and they were exported under the Duty Free Import Authorization Scheme (DFIA). Later, the appellants claimed rebate of duty under Rule 18 of the Central Excise Rules, 2002 and the same was sanctioned under Notification No. 19/2004- CE(NT). The said, exports were taken into account for discharge of export obligation under the DFIA Scheme.

Revenue initiated proceedings against the appellants on the ground that rebate sanctioned was erroneous.

The Adjudicating Authority gave a finding that the condition of the Notification No. 40/2006-Cus, dated 01.05.2006 was violated because the appellants took Cenvat credit on inputs used in exported goods.

Against the said order, appellant is in appeal before the Tribunal.

Appellant’s Contention:- Appellant contended as under: -

- That Notification No. 40/2006-Cus prohibits (a) taking Cenvat credit on inputs procured or imported against DFIA and (b) claim of rebate of duty paid on inputs used in exported goods. It was stated that in their cases, the appellants had not imported any inputs under DFIA Scrips. Therefore, there was no question of taking credit in respect of inputs imported against DFIA.

- That the exports were made using Cenvat inputs procured in the normal course of business.

- That there was no prohibition against using ordinary Cenvat inputs for DFIA exports, either in the Cenvat Credit Scheme or under Rule 18 or the Notification issued thereunder or the DFIA Scheme.

- That as the rebate has been sanctioned against the Orders-in-Original, the respondent ought to have exercised power of review under Section 35E(2) and directed filing of appeal. The issue of Show Cause Notice under Section 11A by the Commissioner is without jurisdiction. The power under Section 11A can be exercised only by the refunding authority or any authority below the Commissioner of Central Excise. It was also stated that the appellants had not used any imported inputs at all.

Respondent’s Contention:- Revenue stated that in terms of Para 4.4.7 of the Foreign Trade Policy 2004-2009, 'no CENVAT credit facility shall be available for inputs either imported or procured indigenously against the Authorization'. Revenue clarified that in the present cases, the indigenous inputs were not procured against the authorization of the DGFT but were procured in the normal course. Therefore, the above objection is not valid. Further, Revenue referred to Para (v) of the Notification No. 40/2006-Cus., dated 01.05.2006 and stated that in terms of the said Notification, only the rebate of duty paid on the materials used in the manufacture of resultant product should not be claimed and also Cenvat credit in respect of materials imported/procured against the authorization should not be availed. In other words, there is no violation of the conditions of the Notifications, as the rebate had been claimed only on the final products, on which duty has been paid. Moreover, Cenvat credit has been taken on the inputs and these inputs are not the inputs referred to in Para (v) of the said Notification. The reason is that the inputs used by the appellants had not been procured against the authorization of the DGFT under the Scheme.

Reasoning of Judgment:- The Tribunal held that the Duty Free Import Authorization is one of the export promotion schemes. In terms of the said scheme, authorization is given by the DGFT for duty free import of inputs, which are used in the manufacture of export products. The provisions of the scheme are available in Foreign Trade Policy 2004-2009 in paras 4.4.1 to 4.4.8 Para 4.4.7 relates to Cenvat facility. It provides that cenvat credit cannot be taken on inputs either imported or procured indigenously against the Authorisation.

The Tribunal referred to Notification No. 40/2006-Cus, dated 01.05.2006 which is issued for exemption of duty under the DFIA Scheme. And it was noted that the provision shows clearly that the rebate on the inputs procured indigenously against authorization should not be taken. In the present case, it is urged that the inputs had not been procured against authorization but have been obtained in the normal course on payment of duty. In view of this, the Tribunal found that the said Notification has been not violated.

Moreover, there is substance in the contention of the appellants that even if there is an erroneous refund, the same can be recovered only after issue of Show Cause Notice. In the present case, the authority who sanctioned the refund had not issued the Show Cause Notice.

Moreover no review under Section 35E had been done. In view of the above, impugned orders set aside as being without merit.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1445

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