Whether simultaneous benefit of Advance authorisation and accumulated refund is admissible?

Case:-THE BOMBAY DYEING & MFG CO LTD Vs COMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation:-2014-TIOL-2170-CESTAT-MUM

Brief Facts:- The appellants are in appeals against the impugned orders wherein their refund claim sanctioned by the Adjudicating Authority has been set aside by the ld. Commissioner (Appeals).

The brief facts of the case are that the Appellants are manufacturers of Polyester Staple Fibre (“PSF”, for short). Out of total quantity of PSF about 75% to 80% is cleared in domestic market on payment of appropriate duty and balance 20% to 25% of PSF is exported to various countries either on payment of duty or under bond or under Letter of Undertaking. The major raw materials for manufacture of PSF are PTA and MEG. The Appellants import PTA and MEG and also procure locally on payment of duty. The Appellants also import the same duty free, under Advance Authorization Scheme/Duty Free Import Authorization. Such duty free imports are normally made after fulfillment of export obligations and issue of Export Obligation Discharge Certificate, which means that the import of PTA and MEG, under Duty Exemption Scheme is normally made after export, as replenishment materials. On an average, duty free procurement of PTA and MEG, under aforesaid duty exemption schemes would be approximately 10% of the total requirement. To manufacture the final product PSF it takes approximately 8 to 10 days, after receipt of inputs. The actual consumption of inputs by the Appellants for manufacture of PSF is less than the consumption norm declared by DGFT, in Standard Input Output Norms (“SION” for short). As the actual consumption is less than the SION, there would be marginal excess quantity of inputs, when imported under any duty exemption schemes, after fulfillment of export obligation.

Further, the rate of duty on inputs was more than the rate on final product. Therefore, there was always accumulation of credit which could not be utilized by the Appellants either for home clearance or for export under rebate scheme. Therefore, the appellant filed refund of credit of duty paid on PTA & MEG used in the manufacture of PSF exported during the period July 2009 to December 2009 under Rule 5 of CENVAT Credit Rules, 2004. A show-cause notice was issued to propose the rejection of the refund claim on the allegation of duty free imports and double benefits. The Adjudicating Authority after examining the matter allowed the refund claim, which was appealed by the revenue before the Commissioner (Appeals). The said refund claims were rejected. Aggrieved by the same, the appellants are in appeal.

Appellant contentions:- Shri M.H. Patil, ld. counsel for the appellant submits that:-

a) that on an average 80% of the production of PSF is sold in domestic market on payment of duty and balance around 20% of PSF is exported.

b) that out of the total requirement of inputs like MEG & PTA, around 10 to 15% is imported duty free under DEEC scheme.

c) that considering the stock holding of inputs for around seven to eight days and finished goods stock holding of the same period, and also based on the records maintained by following FIFO method, duty free imported inputs were not used in the manufacture of PSF exported during the disputed period.

d) that only duty paid Cenvat availed inputs were used in manufacture of PSF exported during the disputed period, which was proved through documentary evidences.

e) that by availing DEEC scheme for exports and claiming refund of duty paid on inputs used in goods exported, no double benefit has been accrued to the Appellants.

f) that even if export are made under DEEC/DEPB/Advance License schemes and duty-free inputs are used, refund of unutilized credit under Rule 5 of CCR is admissible, as there is no double benefit, as held by the Tribunal in the following judgments:

i) U.K. Paints (India) – 2004 (170) ELT 280 (T) = 2004-TIOL-1092-CESTATDEL

ii) Ispat Industries Ltd. – 2006 (195) ELT 37 (T)

iii) Bhilwara Spinners Ltd. – 2011 (269) ELT 384 (T)

iv) Bhilwara Spinners Ltd. – 2008 (226) ELT 222 (T)

v) Bhilwara Spinners Ltd. – 2009 (90) RLT 614 (T)

g) that Rule 5 of CCR being a beneficiary piece of legislation, the refund cannot be denied. In support of that he relied on Idol Textiles Ltd. – 2007 (217) ELT 299 (T) & Navbharat Industries – 2006 (199) ELT 148 (T).

h) that one-to-one co-relation of the inputs and export goods is not required for claiming refund of accumulated credit, under Rule 5 of CENVAT Credit Rules, 2004, for which he relied on the following judgments:

vi) Motherson Sumi Electric Wire – 2010 (252) ELT 543 (T) = 2010-TIOL-144-CESTAT-BANG which has been upheld by Karnataka High Court – 2012 (278) ELT 177 (Kar.)

vii) Capiq Engineering Pvt Ltd. – 2009 (245) ELT 186 (T)

He further submitted that that ratio of Tribunal's judgment in Bhushan Ltd. relied by the ld. Commissioner is not applicable to the facts of this case as in that case, concession was given by the Advocate appearing for the assessee; and in that said judgment, the judgments in U.K. Paints (supra), Ispat Industries Ltd. (supra) and Bhilwara Spinners Ltd. (supra) were not considered, therefore, the said judgment is a per incurrium. He further submitted that the judgment is based on concession given by either party is not binding, as held by MadhumilanSyntex Ltd. – 2006 (195) ELT 141 (SC) = 2006-TIOL-160-SC-CX and Swan Mills Ltd. – 1991 (56) ELT 44 (Bom). He further submitted that per incurrium judgments are not binding ones, for which he relied on the CC v/s State of Kerala – 1993 (66) ELT 351 (Ker). Further, there is no requirement of physical segregation of inputs and separate manufacturing process, in support of which reliance was placed on the Tribunal judgment in the case of Mayur Colours -2002 (48) RLT 744 (T).

He further submitted that that the statement substantiating the use of duty paid PTA & MEG in the manufacture of PSF exported was got verified by the Ld. AR as directed by the Tribunal and the same has not been proved to be erroneous. He further submitted that as per Foreign Trade Policy 2009-14, it would not be possible to get double benefit, therefore he prayed that the impugned orders be set aside and appeals be allowed.

Respondent Contentions:- On the other hand, ld. AR opposed the contention of the counsel and submits that once the export is made under advance license under authorisation there would be double benefit to the appellant. He further submitted that appellant could have utilised the unutilised Cenvat credit for payment of duty for domestic clearance. Therefore, refund claim is not admissible. He further submitted that duty free import PTA & MEG mandatorily has to be used for manufacture of export production. Therefore, the ld. Commissioner (Appeals) has rightly rejected the refund claims.

Reasoning of Judgment:- In this case during the course of argument ld. counsel submitted a detail statement whichshows the use of duty paid PTA and MEG in the manufacture of PSF export. The said statements was sent to the concerned Commissionerate for verification purposes and in the verification reportitself, it is observed the appellant made an effort to show that the usage of PTA and MEGwhich were duty paid were used in the manufacture of export goods. We further find that the chart/statement produced by the appellant has not been rejected by the Revenue and merelysaying that the appellant has not been able to give the details of the PSF batch wise. Therefore,it is not possible to identify the actual use of PTA and MEG duty paid in manufacturing of PSF exportedand in view of the continuing process that therefore it is leading to double benefit.

In fact the detail chart/statement produced by the appellant has not been discarded by any supporting evidence by the revenue against the appellant. Therefore, the statement produced by the appellant is reliable document to substantiate that the duty paid goods have been used in the manufacture of final export product.

We further find that for the relevant period Foreign Trade Policy 2009-14 is applicable, which is reproduced hereunder:-

“4.1.4 Advance Authorisations are exempted from payment of basic customs duty, additional customs duty, education cess, antidumping duty and safeguard duty, if any. However, imports for supplies covered under paragraph 8.2 (h) & (i) will not beexempted from payment of applicable anti-dumping and safeguard duty, if any.4.1.5 (a) Advance Authorisation and / or materials imported thereunder will be withactual user condition. It will not be transferable even after completion of exportobligation. However, Authorisation holder will have option to dispose of productmanufactured out of duty free inputs once export obligation is completed. In casewhere CENVAT credit facility on inputs have been availed for the exported goods,even after completion of export obligation, the goods imported against AdvanceAuthorisation shall be utilized only in the manufacture of dutiable goods whetherwithin the same factory or outside (by a supporting manufacturer),for which theauthorization holder shall produce a certificate from either the jurisdictional CentralExcise Superintendent or Chartered Accountant, at the option of the exporter, at thetime of filing application for EODC to RA concerned.”

We find that till 01.04.1997 the Export Policy provisions were different and duty free imported materials against Advance License were freely transferable after fulfillment of export obligation, where the Modvat/Proforma credit facility or excise relief under Rule 191B of CER 1944, were availed and hence could have lead to possible double benefit. But after 1.4.1997 Foreign Trade Policy (FTP), the position have been changed and going through the provisions relevant for the impugned period it is clear that it would not be possible to get double benefit.

We further find that the issue came up before this Tribunal in U.K. Paints (India)(supra) wherein it held as under:-

“15. The terms of the Rule 57F are very precise and clear. The appellant have to simply demonstrate that on exporting the finished goods credit has accumulated on account of receipt of duty paid inputs by the manufacturer, which they are unable to utilise for any other purpose, and therefore cash refund is the only way out. So for the sake of argument, even if, one assumes that the exported goods have been made by utilising, the duty free imported material, that itself cannot come in way of claiming the refund of accumulated Modvat credit which accrues only on receipt of duty paying inputs in the factory. Refund of credit can of course be denied if it is revealed that, the appellants could use the same for any other purpose. We do not find any such grounds applied for rejection. Therefore, we hold that the enquiry relating to the extent of use of duty free imported inputs in the export production was totally unwarranted and appellant's failure to furnish the information sought on this point cannot be considered to be a deficiency as alleged in the show cause notice.”

Further in the case of Ispat Industries Ltd. (supra), this Tribunal observed as under:-

“Heard both sides. Under the impugned orders, the lower authorities have denied refund of accumulated Cenvat credit of Rs. 1,98,82,260/-to the appellants. The appellants have exported the final products during the period July, 2002 and September, 2002 and the shipments were made under the DEPB scheme as evidenced from the export documents. Hence, it is not in doubt that they have not availed of any drawback of the input duty. It is the stated policy of the Govt. to promote exports and the minimum assistance the authorities below can extend is not to cause impediments in implementing clear policies of the Govt. It is no one's case that the exporter should bear the domestic levy on inputs or pass it in turn to the foreign buyer making Indian goods dearer in the foreign market. In the facts of this case, the appellants are clearly eligible to get refund of accumulated Cenvat credit of duty paid on inputs against exports made. Hence, we allow the appeal with consequential benefit to the appellants.”

We further find that in the case of Bhilwara Spinners Ltd.(supra), this Tribunal observed as under:-

“6. From a reading of this Rule, it is clear that the only restrictions which have been imposed on cash refund of unutilised Cenvat Credit accumulated in respect of export of the goods without payment of duty under bond are that the draw back under the Customs and Central Excise Draw Back Rules, 1995 has not been claimed or rebate of duty under Central Excise Rules, 2002 in respect of the duty paid on the inputs used in the manufacture of the goods exported has not been claimed. There is no provision in this Rule that the cash refund of accumulated Cenvat credit would not be available if the exports have been made under Advance License. While it is true that cash refund under Rule 5 of Cenvat Credit Rules, 2004 of the accumulated Cenvat credit in respect of the inputs used in the manufacture of the goods exported under bond without payment of duty and the rebate vide Rule 18 of duty on the
inputs used in the manufacture of goods exported, are equivalent, and the benefit of duty free imports under advance licensing scheme under notification No. 43/02-Cus. and 93/04-Cus. is available subject to condition that the facility of input duty rebate under Rule 18 or acquiring duty free inputs under Rule 19(2) of the Central Excise Rules, 2002 has not been availed, unless the condition of non-availment of advance license benefit is mentioned in Rule 5 of the Cenvat Credit Rules, 2004, the same cannot be read into it. Moreover, when the exemption notifications Nos. 43/2002- Cus. or 93/2004-Cus. in respect of the duty free imports made against Advance License issued against the exports made under Advance License Scheme, mention that for the benefit of the exemption under these notifications, the export obligations in respect of the Advance License should be discharged by export of finished products without availing the facility under Rule 18 or Rule 19(2) of the Central Excise Rules, 2002 and of these conditions are breached, as according to Department, facility of input duty rebate under Rule 18 of Central Excise Rules, 2002 is equivalent to cash refund of accumulated cenvat credit under Rule 5 of Cenvat Credit Rules, 2004, then it is the benefit of the duty exemption under these notifications in respect of the goods imported against the advance license, which has to be denied, and not the benefit of cash refund under Rule 5 of the Cenvat Credit Rules, 2004 in respect of the exports.

“7. In the case of Videocon International v. Commissioner of Customs, Mumbai (supra) cited by the Revenue the exports had been made under value based Advance License Scheme of exemption notification No. 203/92-Cus., dated 19-5-1992 where the benefit of duty exemption under the notification was subject to the condition that the export obligations should have been discharged by exporting the goods manufactured in India in respect of which no input duty credit has been availed and in respect of the exports under value based Advance License Scheme, the appellant, as a part of Amnesty Scheme announced by the Government of India, had reversed the Modvat so as to avoid the denial of benefit of duty exemption notification No. 203/92- Customs, but still subsequently, they claimed cash refund of the Modvat credit in respect of the goods exported, which was denied. It is in this background that the Tribunal held that when the appellant have taken the benefit of duty exemption under Notification No. 203/92-Cus., after reversing the input duty credit, they cannot avail the cash refund of the Modvat credit, which had already been reversed. In the present case, neither the condition of non-availment of Cenvat credit in respect of the goods exported is there in the notification No. 43/2002-Cus. or 93/2004-Cus. nor the Cenvat credit availed by them has been reversed. Therefore, the ratio of the Tribunal's judgment in the case of Videocon International v. Commissioner of Customs , Mumbai (supra) is not applicable to the facts of this case. In this case as discussed above, if the department is of the view that the respondents have violated the conditions of the Customs Notification Nos. 43/2002-Cus. and 93/2004-Cus. by seeking cash refund of the accumulated Cenvat credit in respect of the goods exported under bond, which according to the Department is equivalent to availing input duty rebate under Rule 18 of the Central Excise Rules, 2002, the respondent should have been denied the benefit of the duty exemption under these notifications in respect of the goods imported against the Advance Licences issued against the exports. But there is no justification for denying the cash refund under Rule 5 of the Cenvat Credit Rules,2004 when none of the conditions subject to which the same is available, has been violated.”

We further find that in the case of Bhilwara Spinners Ltd. (supra), this Tribunal observed as under:-

“8. In view of the decision of the Tribunal in the case of Ispat Industries Limited (supra) refund claim under Rule 5 of Cenvat Credit Rules cannot be denied unless the assessee claimed drawback or rebate. The contention of the learned Authorized Representative (DR) that the respondent is getting the double benefit if the refund is Allowed, not sustainable for the reason that in this case, respondents are getting the refund of the excise duty which they paid on the raw material used in the
manufacture of exported goods. Under the advance license scheme, the respondents are entitled to get the duty free material. The said duty free material may be replenished towards home consumption and set off is available to the respondent as Cenvat credit for payment of duty on final product which were ultimately cleared in home consumption with payment of duty. Therefore, I do not find any merit in the submission of the learned Authorized Representative (DR). So, there is no reason to interfere with the order of the Commissioner (Appeals). Accordingly, the appeal filed by the Revenue is rejected.”

In view of the above, it is clear that to claim refund under Rule 5 of CENVAT Credit Rules, 2004 on export of the finished goods, the credit is accumulated and the same cannot be utilized otherwise. We also find that as per the provisions of Foreign Trade Policy post 1997, no double benefit is available.

We further find that in the case of Motherson Sumi Electric Wire(supra), this Tribunal held that no one-to-one correlation was required between the inputs and exported goods. Therefore, appellants are entitled for such credit accumulated from time to time, which has been affirmed by the Hon'ble Karnataka High Court. We also find that while sanctioning the refund claim the Adjudicating Authority has examined the whole issue and recorded the finding as under:-

“The Adjudicating Authority allowed the refund claims holding that there was huge opening balance of unutilized credit of Rs.50.51 crores in the cenvat account; that there was accumulation of further credit of Rs.11.34 crores, during the disputed two quarters; that out of the said balance credit, the assessee could utilize only Rs.16.82 crores during the disputed quarters, leaving a balance unutilized credit of Rs.45.03 crores; that the credit balance has never gone below the refund claimed, which itself evidences that the assessee was not in a position to utilize the cenvat credit of the amount claimed as cash refund in the present case; that goods exported have been manufactured out of duty paid inputs, either imported or indigenous, and duty-free imported goods under advance authorization scheme, as replenishment materials, have not been used in the manufacture of goods exported; that the scheme of advance authorization under Para 4.1.5 of the FTP does not stipulate that imported goods must form part of exported goods and use of imported goods for manufacture of goods cleared in DTA, on payment of duty, is allowed; that advance authorization scheme under FTP does not cast any restriction on the use of local duty paid inputs in manufacture of the goods cleared for export and refund of cenvat credit on inputs so used; that since the assessee is not manufacturing any exempt goods, the question of their taking double benefit does not arise; that against export clearance of about 22%, domestic clearance on payment of duty was approximately 78% and, hence, the claim that inputs imported duty free under advance authorization are utilized in the manufacture of dutiable goods cleared in DTA on payment of duty sounds reasonable; that although there is actual-user condition in advance authorization scheme, actual use of imported goods in goods exported is not required, based on Hon'ble Tribunal judgment in the case of Kitply Industries v/s. CCE – 20003 (153) ELT 366 (T); that one-to-one correlation of consumption of raw materials imported under DEEC scheme and goods exported is neither feasible nor warranted under central excise provisions; that even Board's Instruction F.No. 605/373/96-DBK dated 16.01.1997 also clarified that the term “raw materials required for use” does not mean that raw material must be physically incorporated; that judgments of Hon'ble Tribunal in Bhilwara Spinners – 2009 (90) RLT 614 (T) and U.K. Paints – 2004 (170) ELT 280 (T), relied upon by the assessee would support their contention that duty free imports under Advance License does not take away the substantial benefits of refund under Rule 5 of CCR r/w Notn. No. 5/2006- CE (NT) dated 14.3.2006; that if the legislative intention was to deny DEEC benefit
along with refund under Rule 5, it would have specifically mentioned in the Notification, as it has mentioned drawback and rebate; that advance authorization and corresponding Notn. No. 93/2004Cus dated 10.9.2004 does not put any restriction on refund of cenvat credit under Rule 5 of CCR, although it prohibits export under Rule 18 & Rule 19 (2) of CER; that cash refund of unutilized credit, under Rule 5 of CCR, is an export incentive to the exporters, which cannot be clubbed with advance authorization scheme; that the refund claim was filed within prescribed time limit and since it is refund of cenvat credit under Rule 5, it does not attract the bar of unjust enrichment, in view of provisions of Section 11B(2)(c) of CEA.”

In view of the above discussion, we find that the appellant have not availed any double benefit in the light of the above cited decision and as per the Foreign Trade Policy 2009-14 and are entitled to claim refund of Cenvat credit accumulated unutilised on export of the finished goods which appellant was not able to utilise otherwise under Rule 5 of CENVAT Credit Rules, 2004.

Therefore, we set aside the impugned order and allow the appeals with consequential relief, if any.

Decision:- Appeal allowed.
Comment:- The gist of the case is that the appellant is entitled to claim refund of CENVAT credit accumulated & unutilised on export of the finished goods which they are not able to utilise otherwise irrespective of the fact that they have availed the benefit of advance authorisation. The analogy of the case is that refund of accumulated credit under Rule 5 cannot be considered as double benefit if the assessee has also availed benefit of advance authorisation wherein duty free inputs have been imported.

Prepared By: Meet Jain

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