Whether refund under Rule 5 admissible even if goods exported are unconditionally exempted?

Case:-COMMISSIONER OF C.EX., JALANDHAR VERSUS JCT LTD.

Citation:-2013(296) E.L.T. 426 (Tri.-Del.)

Brief Facts:The respondents are manufacturers of unprocessed cotton fabrics, unprocessed man-made fabrics, processed man-made fabrics as well as processed cotton fabrics, cotton yarn and yarn of man-made fibres. Unprocessed fabrics, whether of cotton or of man-made yarn/fibre were exempt from duty. While processed cotton as well as man-made fabrics attract basic excise duty (BED) and also additional excise duty leviable under Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter referred to as "AEDGSI"), cotton yarn as well as yarn of man-made fibres, attract BED and additional excise duty leviable under Additional Duties of Excise (Textiles & Textile Articles) Act, 1978 (hereinafter referred to as "AED (T&TA")]. For manufacture of cotton fabrics, the appellant manufacture cotton yarn in their factory from cotton and also purchase duty paid cotton yarn from outside in respect of which Cenvat credit of basic excise duty and AED (T&TA) is availed. For manufacture of fabrics of manmade yarn, the appellant purchased duty paid man-made fibres out of which yarn was manufactured for captive use and besides this, they also purchased duty paid yarn from outside. In respect of duty paid man-made fibres or manmade yarn purchased from outside, Cenvat credit of basic excise duty and AED (T&TA) is taken. The yarn of cotton or man-made fibres manufactured in the factory is cleared entirely for captive use in the manufacture of fabrics. When the fabric is cleared in unprocessed form, which is fully exempt from duty, duty is paid by the appellant at the yarn stage and on the yarn, BED and AED (T&TA) is paid. For payment of AED (T&TA) on the yarn, the available AED (T&TA) credit is utilised. However, except for some domestic sales of unprocessed fabrics, the major portion of the unprocessed fabrics were exported under bond and in respect of such clearances, no duty was payable at the yarn stage. As regards, clearances of processed fabrics, while no duty is paid at the yarn stage, at the processed fabric stage, BED and AED (GSI) is paid, as in respect of clearances of processed man-made fabrics, no AED (T&TA) is payable. Thus, AED (T&TA) credit could be used only for payment of this duty at yarn stage, when the fabrics made out of the yarn were cleared in unprocessed form home consumption, which are fully exempt from duty. Since according to the appellant, they were unable to utilise the accumulated Cenvat credit of AED (T&TA) for payment of this duty on domestic clearances, as the bulk of the clearances of unprocessed fabrics were for export, they, on 26-6-2003, filed a claim for cash refund under Rule 5 of the Cenvat Credit Rules, of the accumulated AED (T&TA) credit. The claim was in respect of four quarters - April, 2002, to June, 2002, July, 2002 to September, 2002, October, 2002 to December, 2002, January, 2003 to March, 2003 and the total amount of the claim was Rs. 10,45,988/-.
This claim was examined by the jurisdictional Asstt. Commissioner, who vide order-in-original dated 15-10-2004 rejected the refund claim on the grounds that -
a.     Rule 5 of Cenvat Credit Rules, is applicable only to those cases where the goods exported are dutiable and as such, Rule 5 is not applicable in this case where unprocessed fabric was unconditionally exempt from duty.
b.    Goods exported are unprocessed cotton fabrics, while the actual accumulation of AED (T & TA) credit whose cash refund is sought is on account of man-made yarn and man-made fibre, the unprocessed fabrics made out of which were cleared for home consumption.
c.     While in terms of the notification issued under Rule 5, the refund claim for cash refund of Cenvat credit is required to be filed within the limitation period prescribed under Section 11B, in this case, the claim has been filed after period of one year from the date of export and hence, the claim for the period April, 2002 to June, 2002 is time-barred.
The respondent filed an appeal to the Commissioner (Appeals) against the above order of the Assistant Commissioner, who vide order-in-appeal dated 30-6-2005 allowed the appeal holding that -
a.     while from plain reading of Rule 5, it is evident that the benefit of cash refund of Cenvat credit is allowed in respect of those inputs only, which are used in the manufacture of final products cleared for export under bond, once it has been admitted by the Department that the inputs in respect of which Cenvat credit was availed, were received in the factory, the same are deemed to have been used in the manufacture of final products and one to one correlation between input and the finished product cleared for export is not required to be proved; and
b.    while notification issued under Rule 5 provides that the claim is to be filed within the limitation period prescribed under Section 11B,i.e. one year, the relevant date from which the limitation period is to be counted, is not defined for such cases and that the starting point/relevant date for such cases would be when it is determined that the accumulated credit cannot be adjusted for payment of duty on domestic clearances or for any other reasons and accordingly, no part of the claim is hit by limitation.

Appellant Contention:Ld. Departmental Representative assailed the impugned order by reiterating the grounds of appeal in the Revenue's appeal and emphasized that -
a.     Rule 5 is applicable only in those cases where the finished products exported made out of Cenvat credit availed inputs are dutiable and the credit has accumulated due to exports, while in this case, the goods which were exported are unprocessed fabrics, which are fully exempt from duty and therefore, Rule 5 of the Cenvat Credit Rules, is not applicable.
b.    The claim for the period from April, May and June, 2012 is hit by limitation, as the claim has been filed after expiry of the period of one year from the date of export.
c.     Accumulation of AED (T&TA) credit is mainly on account of procurement of duty paid man-made yarn, and man-made fibres, the unprocessed man-made fabrics made out of which were cleared for home consumption, while the goods exported are unprocessed cotton fabrics and under Rule 5, cash refund of only that accumulated Cenvat credit is permissible which has been taken in respect of inputs used in the manufacture of final products cleared for export under bond, or letter of undertaking.

Respondent Contention:Ld. Counsel for the respondent defended the impugned order by reiterating the findings of the Commissioner (Appeals) and pleaded that Hon'ble Bombay High Court in the case of Repro India Ltd. v. Union of India reported in 2009 (235) E.L.T. 614 (Bom.) and Hon'ble Himachal Pradesh High Court in the case of CCE v. Drish Shoes Ltd. reported in 2010 (254) E.L.T. 417 (H.P.) has held that in the words 'excisable goods' in Rule 6(6) of Cenvat Credit Rules, 2004 are wide enough to cover dutiable as well as exempted goods exported out of India and even in respect of the exempted goods exported out of India, Cenvat credit is available and if the same cannot be utilized for payment of duty on clearance for home consumption, in accordance with the provisions of Rule 5 of the Cenvat Credit Rules, its cash refund would be admissible, that in view of this, the department's plea that Rule 5 of the Cenvat Credit Rules, is not applicable is totally incorrect, that for the purpose of cash refund under Rule 5 of Cenvat Credit Rules, one-to-one co-relation between the inputs in respect of which Cenvat credit has been taken and which has accumulated and the final product exported is not required to be proved, that the refund claim for the period April, 2002 to June, 2002 is not time-barred in view of the judgment of the Tribunal in the case of Tata Motors Ltd. v. CCE, Jamshedpur reported in 2012 (284) E.L.T. 593 (Tribunal-Kolkata), wherein the Tribunal relying upon the earlier decision in the case of Hindustan Motors Limited reported in 1996 (87) E.L.T. 216 held that limitation period prescribed under Section 11B of the Central Excise Act is not applicable for cash refund of accumulated Cenvat credit under Rule 57F(4) of the Central Excise Rules, 1944; that in respect of Rule 5 of the Cenvat Credit Rules, 2004, the same view has been taken by Hon’ble Madhya Pradesh High Court in the case of STI Ltd. v. CCE, Indore reported in 2009 (236) E.L.T. 248 (M.P.) = 2010 (19) S.T.R. 614 (M.P.) and also by the Tribunal in the case of Elcomponics Sales Pvt. Ltd. reported in 2012 (279) E.L.T. 280and that in view of this, there is no infirmity in the impugned order.

Reasoning of Judgment:We have considered the submissions from both the sides and perused the records.
Coming to the question of limitation, which is in respect of the claim for April, 2002 to June, 2002 period, Notification No. 11/2002-C.E. (N.T.), dated 1-3-2002 issued under Rule 5 of the Cenvat Credit Rules, 2002 provides that the application in the prescribed form for cash refund of the accumulated credit, which the manufacturer cannot use for payment of duty on the clearances for home consumption, must be submitted to jurisdictional Dy./Asstt. Commissioner "before the expiry of the period, specified in Section 11B of the Central Excise Act, 1944", along with proof of export and other records. Earlier, when the provisions of cash refund of accumulated credit were in Rule 57F(4) of the Central Excise Rules, 1944, the notification issued under Rule 57F(4) had similar provisions. While the notification issued under Rule 5 of the Cenvat Credit Rules, 2002, simply provides that claim for cash refund under Rule 5 must be filed with the Dy./Asstt. Commissioner before expiry of the period specified in Section 11B, neither in this notification nor in Section 11B, there is any provision as to from which date the limitation period prescribed under Section 11B is to be counted. The relevant date for the purpose of counting limitation period under Section 11B is defined in Explanation B to Section 11B. But it does not cover the claims for cash refund of accumulated credit under Rule 5 of the Cenvat Credit Rules, 2002. While Explanation B(a) provides that "relevant date" in case of goods exported out of India, where a rebate of excise duty paid is available in respect of the goods themselves or as the case may be, the excisable materials used in the manufacture of such goods, shall be the date on which the ship/aircraft, in which the goods are loaded, leaves India in case of export by sea or by air or the date on which the goods cross the land frontier in case of export by land or the date of despatch of goods by post office concerned to a place outside India in case of export by post, this provision cannot be applied to the case of cash refund of accumulated Cenvat credit under Rule 5, as the claim is linked not only with accumulation of Cenvat credit in respect of the inputs used in the manufacture of goods cleared for export under bond, the same is also linked with the manufacturer's inability to utilise this credit for payment of duty on the clearances for home consumption. For this reason only, the Tribunal in the case of Hindustan Motors Ltd.(supra) has held that in respect of cash refund of accumulated credit filed under Rule 57F(4), the limitation period prescribed in Section 11B is not applicable. Same view has been taken by the Hon'ble Madhya Pradesh High Court in the case of STI Ltd. (supra), wherein Hon'ble High Court has held that strict law of limitation provided under Section 11B of the Central Excise Act would not apply to a claim for cash refund of accumulated credit made in terms of the notification issued under Rule 57F, as in such a case the requirement of filing of claim within the limitation period provided under Rule 11B is procedural in nature rather than mandatory. Moreover any limitation for filing any claim, appeal, etc., prescribed under any law, has two components - the period of limitation during which the claim, appeal, etc., is to be filed and the date from which the limitation period is to be counted. If the date from which limitation period is to be counted is missing, it would amount to not prescribing any limitation period. In view of this, we hold that the claim for the period from April, 2002 to June, 2002 is not hit by limitation.
Coming to the main question of admissibility of cash refund, Rule 5 of the Cenvat Credit Rules is reproduced below:-
Rule 5:Refund of CENVAT credit. - Where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification:
Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty."
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Under Rule 6(6) of Cenvat Credit Rules, 2004 and Rule 6(5) of Cenvat Credit Rules, 2002, the provision of sub-rules (1), (2), (3) & (4) of Rule 6 of Cenvat Credit Rules, 2002/2004 would not be applicable if the "excisable goods removed without payment of duty are the goods cleared/removed for export under bond in terms of the provision of Central Excise Rules, 2002.
From the bare perusal of this rule, it is clear that this rule provides for cash refund of accumulated Cenvat credit taken only in respect of those inputs which have been used in the manufacture of final products, which have been cleared for export under bond or under letter of undertaking as the case may be. In other words, if accumulated Cenvat credit is in respect of two inputs A and B and while final product made out of A is cleared for home consumption on payment of duty and the final product made out of input B is cleared for export under bond without payment of duty, for the purpose of cash refund under Rule 5, only the accumulated Cenvat credit in respect of input B, which cannot be utilized for payment of duty on clearances for home consumption, would be eligible for cash refund. In this regard, Rule 5 of Cenvat Credit Rules, 2002/2004 is different from Rule 3(4) ibid which provides that -"Cenvat credit may be utilized for payment of - (a) any duty of excise on any final product; or…………………” While for the purpose of Rule 3(4) i.e. utilization of Cenvat credit for payment of duty on final product, one to one co-relation between the inputs in respect of which Cenvat credit has been taken and the final product for payment of duty on which the credit is utilized, is not required, and as such, credit taken in respect of any input can be utilized for payment of duty on any final product, in view of the language of Rule 5, the principle of one-to-one co-relationship between input and finished product not being required, will not apply for cash refund of accumulated Cenvat credit. However, the credit in respect of inputs used in the manufacture of final products cleared for export under bond or LUT etc. can be utilized for payment of duty on clearances for home consumption of any final product including those made out of other inputs, as, as per the provisions of Rule 3(4), there is no restriction in this regard and only the credit which cannot be utilized for payment of duty on any final products cleared for home consumption would be eligible for cash refund under Rule 5.
There is one more reason why the Commissioner (Appeals)'s view on this point is not correct. The cash refund of accumulated Cenvat credit under Rule 5 is equivalent to input duty rebate under Rule 18 of Central Excise Rules, 2002 or excise/service tax duty drawback under Customs & Central Excise Duties Drawback Rules, 1975 of which only one benefit can be availed by a manufacturer exporter at a time. For this reason also, the cash refund under Rule 5 of Cenvat Credit Rules cannot be more than the excise duty involved on inputs and service tax involved on input services used in or in relation to the manufacture of the final product exported.
The second point of dispute is as to whether a manufacturer can take Cenvat credit in respect of inputs which have been used in the manufacture of finished goods exported out of India, but the finished goods are fully and unconditionally exempt from duty. On this point, the Hon’ble Himachal Pradesh High Court in case of Drish Shoes Ltd. (supra) and Hon'ble Bombay High Court in case ofRepro India Ltd. (supra), have held that Cenvat credit would be admissible in respect of inputs used in the manufacture of excisable goods which though fully exempt from duty, have been exported out of India as the term 'excisable goods' in Rule 6(5)/6(6) of the Cenvat Credit Rules, 2002/2004 is wide enough to include both dutiable as well as exempted excisable goods and accordingly, if the credit accumulated due to export of such finished products, even if fully exempt from duty, cannot be utilized for payment of duty on domestic clearances, its cash refund would have to be allowed.
However, in this case, the Department's contention is that the accumulated AED (T&TA) credit whose cash refund is sought, has been mainly taken in respect of duty paid man-made yarn and man-made fibres purchased from outside and this yarn/fibre had been used in the manufacture of man-made fabrics which had been cleared for home consumption, while the goods exported are unprocessed cotton fabrics in respect of which there is very little AED (T & TA) credit taken in respect of cotton yarn purchased from outside. This aspect has to be verified and if it is found that the accumulated Cenvat credit whose cash refund is sought under Rule 5, is in respect of inputs which have not been used in the manufacture of final products exported under bond /LUT, the respondent would not be eligible for cash refund. For this purpose, this matter has to be remanded.
In view of the above discussion, we set aside the impugned order and remand the matter to the original adjudicating authority for de novo decision keeping in view our observations in this order.

Decision:-Appeal allowed.

Comment:-The essence of this case is that refund claim of accumulated credit under Rule 5 may be filed even in case the goods being exported are unconditionally exempted. The reason for the same being that the provisions of Rule 6 do not apply to the goods exported under bond/LUT and so credit of inputs is admissible even if the exported goods are exempt. Further, when the credit availment is legal and proper, there is no question of rejecting the refund claim under Rule 5. However, the only point that is to be examined is that the credit of inputs which is being claimed as refund under Rule 5 have been used in the manufacture of exported goods. In this case, it was also concluded that the time limit as prescribed in section 11B is not applicable for filing refund claim under Rule 5.

Prepared by: Hushen Ganodwala

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