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PJ/CASE LAW/2015-16/2756

Whether refund under Rule 5 not admissible if export not done under bond?

Case:-JOLLY BOARD LTD. Vs COMMISSIONER OF CENTRAL EXCISE, AURANGABAD

Citation:-2015 (321) E.L.T. 502 (Tri. - Mumbai)

Brief Facts:-The appellants are in appeals against the impugned orders wherein refund claim filed under Notification 5/2006 was denied to them on the premise that as the appellant are manufacturers of exempted goods, therefore, as per Rule 6(1) of the CENVAT Credit Rules, 2004 they are not entitled to take input credit. Consequently, they are not entitled to file refund claim under Notification 5/2006. Another reason for deny of refund claim is that as the goods were not exported under bond, therefore provisions of Rule 6(6)(v) of CENVAT Credit Rules, 2004 are not applicable to the facts of this case.

Respondent contentions:-On the other hand, ld. AR strongly opposed the contention of the ld. consultant who submits that it is not in dispute that the goods manufactured by the appellant are exempted goods. Therefore as per Rule 6(1) of CENVAT Credit Rules, 2004, they are not entitled to avail credit on inputs/input service which were used in the manufacturing of exempted goods. He further submits that the provisions of Rule 6(6)(v) of CENVAT Credit Rules, 2004 are also not applicable. The fact is as admitted that the goods have been exported without executing any bond. As the appellant has not contested the eligibility of the inputs/input service proposed to be denied in the show-cause notice therefore they are entitled for the same. He further submits that as per amendment in Notification 42/2001 by virtue of Notification 24/2010, dated 6-5-2010 the appellant are not entitled to take credit itself. There is a separate procedure under Rule 18 of the Central Excise Rules, 2002 to claim refund/rebate of the inputs when manufacturing of exempted goods.

Reasoning of Judgment:-Heard both sides. In this case the appellant has procured inputs/input service on payment of duty which were gone in the manufacturing of exempted goods which were exported by the appellant. These facts are not in dispute. The intent of the legislation is not in dispute that the taxes are not to be exported. The same issue came up before Jobelle (supra) wherein this tribunal held that the sub-rule (5) makes an exception when exempted finished goods are either cleared to a free trade zone, SEZ, 100% EOU or are cleared for export under Bond without payment of duty. If the goods are exported on payment of duty after taking credit of duty paid on the inputs and utilizing the same, then the question of refund of input duty would not arise. But is clearly the Governments policy not to export the domestic duties, on the finished goods or on the inputs, to the International market. If refund of input duty credit is not allowed, the goods will become costly in International market and less competitive.
Further, this issue came up before the Hon’ble High Court in the case of Drish Shoes Ltd. (supra) wherein the facts were the assessee were manufacturers of finished leather and finished leather was exported. After export they claimed refund on account of CENVAT credit paid on inputs, which were purchased for finishing the export goods. Refund was sought to be denied under provisions of Rules 5 and 6 of CENVAT Credit Rules, 2002. Thereafter the Hon’ble High Court examined the issue and held as under :
“16.      The Scheme of CENVAT Credit Rules, 2002, as also 2004, reference to the relevant provisions of which has been made hereinabove, shows that CENVAT credit/refund is allowed on the inputs of all manufactured goods which are not exempt from duty, as is clear from a combined reading of rule 3 and sub rule (1) of Rule 6 of the CENVAT Credit Rules, 2002, as also the 2004, so as to avoid indirect double taxation on inputs. However, this rule is not absolute. It is subject to exception clause, contained in Rule 6(5) of the 2002 and 6(6) of the Rules of 2004, and one of the ‘exceptions is in respect of excisable goods, which are cleared for export under bond in terms of the provisions of Central Excise Rules, 2002.
17. Sub rule (5) of Rule 6 of the Rules of 2002 was applicable only in case of exempted goods. That meant that the exception was not applicable in case of dutiable goods. It appears that this led to anomalous situations. For example, if the goods were dutiable and were exported, credit for CENVAT could not be claimed in respect of input of those goods, at least under the aforesaid exception clause. To overcome this kind of anomalous situations, exception clause contained in sub rule (6) of Rule 6 of CENVAT Credit Rules, 2004 has been made applicable to all excisable goods.
18.Learned counsel for the appellant argue that term ‘excisable goods’ used in sub rule (6) of Rule 6 of 2004 Rules, meant only dutiable goods. Submission has been noticed only to be rejected.
19. A Division Bench of Bombay High court in 2009 (235) E.L.T. 614 (Bom.) - Repro India Ltd. v. Union of India, while dealing with a similar situation and interpreting the provisions of Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, has held that expression “excisable goods” is wider than the expression “exempted goods”, as it includes both dutiable as also exempted goods.
20. In view of the above discussion, we hold that an assessee, manufacturing goods chargeable to nil duty, is eligible to avail CENVAT credit paid on the inputs under the exception clause to rule 6(1), as contained in 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) CENVAT Credit Rules, 2004, used in the manufacture of such goods, if the goods are exported. Question No. 1 is answered accordingly.
21. As regards question No. 2, it is clear from a bare reading of rule 5 of CENVAT Credit Rules, 2004 that a manufacturer, who exports the final products which are exempt from duty, can claim refund of CENVAT. So, this question is also answered against the appellant.”
The issue came up before the Hon’ble High Court of Bombay in Repro India Ltd. (supra) wherein the Hon’ble High Court held that CENVAT credit used in the manufacture of final product being exported irrespective of the fact that final product are otherwise exempted by provisions of Rule 6(6)(v) of the CENVAT Credit Rules, 2004 are applicable. Further, it was found that in the case of Salzer Controls Ltd. - 2003 (160) E.L.T. 1169 and Paras Ship Breakers Ltd. this Tribunal has held that non-execution of bonds are only technical lapse. Further, in the case of Well Known Polyester Ltd. (supra) wherein the exempted goods were exported without bond or LUT by an assessee who was not even registered without bond or LUT by an assessee who was not even registered with the Central Excise department. This Tribunal has held that execution of bond/LUT was only procedural lapse for which refund could not be denied.
Admittedly, in this case, appellant has not executed any bond for export of the goods. If the goods are exempted, execution of bond was not required.
In these circumstances, relying on the above cited decisions, it was held that the appellant are entitled for refund claim. Accordingly, appeals are allowed with consequential relief.
 
Decision:-Appeals allowed.
 
Comment:-The crux of the case is that the ultimate objective of the government is that taxes are not to be exported. Government policy is not to export the domestic duties on the finished goods or on the inputs to the International market. Also, if refund of input duty credit is not allowed, the goods will become costly in International market and less competitive. Accordingly, the benefit of rule 5 would be admissible even if the exports are being made without execution of bond.

Prepared By:MEET JAIN

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