export of goods under the Advance Licensing Scheme

PJ/Case Laws/2010-11/1024

Case: Mewar Polytex Ltd v/s Union of India & Ors

Citation: 2010-TIOL-110-SC-CX

Issue:- Whether there were two separate duties that arose, for the assessee to claim credit on both, or if the entire process is to be considered as a single cycle, which culminated in the export of goods under the Advance Licensing Scheme?

Brief Facts:- Appellant is engaged in the manufacture of HDPE/PP fabrics and bags. They were clearing the goods for home consumption on payment of central excise duty, as well as exporting the goods under bond without payment of duty, and were availing Modvat credit on the inputs under Rule 57A.

The appellant had vide declarations in Form AR4 dated 4.8.1998, 17.8.1998 and 22.8.1998 exported certain quantity of fabrics in its own account, and had not claimed Modvat credit at the time when declarations under Form AR4s were made.

Appellant had subsequently claimed Modvat credit on the inputs used for the very same manufactured goods that were exported under AR4.

Revenue contended that appellant were not entitled to take the impugned credit. The Assessing Officer confirmed the demand and ordered reversal of credit with interest and also imposed penalty. The impugned order was set aside in appeal before the Commissioner (A). Revenue filed appeal before the Tribunal wherein the order of the Commissioner (A) was set aside. Appellant therefore filed appeal before the High Court.

The High Court dismissed the appeal, holding that the appellant had resorted to subterfuge and impermissible technicalities in attaining its desired end to claim the Modvat credit. While the High Court admitted that the appellant had not indeed claimed the Modvat credit on the inputs at the date when Form AR4s were submitted and the goods were exported, it was held that the said line of argument could not make a case in favour of the appellant. The High Court arrived at this conclusion on a reading of the provisions enshrined in Rule 57A, Sub-rules (1) and (2), and on interpreting the declarations made under Form AR4 in context of the case. The High Court held that the appellant was not entitled to claim the credit of Modvat.

Aggrieved by this, appellant filed appeal before the Apex Court.

Appellants Contention:- Appellant contended that they had taken credit of the duty on indigenous inputs only after the replenishment arrived. They had not claimed Modvat credit at the time the declarations under the Advance Licensing Scheme were filed, but only later.

It was further contended by the appellant that it has not gained any extra benefit except as provided under law. While fulfilling the export obligation under the Advance Licensing Scheme, the appellant was entitled to avail credit on duty paid on indigenous inputs as well as on CVD in lieu of excise duty paid on imported, replenished material. It was submitted that it had only availed Modvat credit on indigenous inputs and availed drawback on the export consignment as no credit was availed on CVD paid for the imported material. Therefore, any action that could have been taken against the appellant should have been made under the Customs and Central Excise Duties Drawback Rule, 1971 which was not done in the present case.

Respondent’s Contention:- Before the Adjudicating Authority, Revenue had contended that the AR4A were false declaration, as the appellant had been availing Modvat credit on the inputs under Rule 57A. Likewise, in column 4 of the Form, the appellant had further declared that the export is under duty drawback, while on examination of Central excise records and R.T.12 returns of the appellant, it was found that they had taken Modvat credit on the inputs used in the manufacture of exported goods, and they had not received any duty free consignment of PP Granules (Inputs) from anyone for exporting the goods on its behalf till the date of involved exports, and that they had also not reversed any credit taken on the inputs used in the goods exported vide above referred AR4s. Thus, the appellant had wrongly taken credit of Modvat which was not admissible.

Before the Apex Court, Revenue contended that the appellant had resorted to technicalities in order to avail double benefit. The Modvat credit availed relates to the same inputs which were used in the manufacture of exported goods under AR4. Since the appellant had exported the goods under AR4, claiming that no excise duty was payable on the exported goods, it was contended that no Modvat credit could be claimed in line with the provisions of Rule 57A.

Reasoning of Judgment:- The Apex Court perused the provisions of Rule 57A and concluded that an entitlement to Modvat credit will arise only if excise duty is incident upon the final product. In the present case, the final product i.e. PP fabrics were exported under Advance Licensing scheme without any payment of duty. Therefore, the appellant were not justified in taking credit as per provisions of Rule 57A.

It was noted that in effect, the assessee had used indigenous duty-paid inputs, and the finished products were exported without payment of excise duty and subsequently, Modvat credit was claimed on such inputs.

Next, the Apex Court examined the issue that whether the claiming of Modvat credit after filing the declarations in AR4 would entitle the appellant to Modvat credit on the indigenous inputs. In this regard it was noted that the declarations filed under AR4s entitled the appellant to import inputs on payment of CVD, which subsequently was permitted to be drawn back.

It was held that therefore, the appellant had utilized the specified mechanism to avail of a benefit on the imported inputs, while availing of Modvat credit on the indigenous raw material used in the manufacture of the same, exported goods. In effect, the appellant has not only availed of Modvat credit on the indigenous input, but also drew back countervailing duty paid on imported inputs that were mere stock replenishments, which amounts to a double benefit. That the Modvat credit was technically claimed only subsequent to the filing of AR4 declarations, although the indigenous goods were used in the manufacturing process a priori does not also reflect well on the intention of the appellant. The appellant had merely resorted to the technicality of claiming Modvat credit subsequent to the AR4 declarations, thereby entitling it to drawback. Subsequently, the Modvat credit has been availed on the very same indigenous goods, which shows that the claim of the appellant to be legitimately entitled to two separate duties is but a facade.

It was further held that there was no question of separate duties arising in this case since the issue concerns the manufacture and export of one and the same goods. The imported inputs were primarily stock replenishments that were used in the execution of other orders, and allowing the appellant to claim Modvat credit on the indigenous input would tantamount to giving a benefit twice for the same process that began with the manufacture and culminated in the export of the specified goods. The appellant cannot be held to be not entitled to claiming Modvat credit on finished goods where duty is not incident. Any attempt to avail it subsequently, casts serious aspersions on the bonafide intention of the appellant.

It was further held that the argument of the appellant that action had to be taken under the Duties Drawback Rules, 1971 and not through reversal of credit does not bear merit. The reversal of credit is meant to deny the appellant of a benefit that they would have otherwise enjoyed without justification. The drawback equivalent to CVD is legitimately permissible vide the process of AR4 declarations and thus, it is the benefit that is enjoyed without justifiable basis that has to be reversed. No merit in appeal.

Decision:- Appeal dismissed.
Comments:- This has landmark judgement by Apex Court. The assesssee claimed double input stage benefits by claiming drawback as well as Cenvat credit on same export goods. It is rightly denied by Highest Court of India.

Comments

PJ/Case Laws/2010-11/1024

Post a Comment

Query