Admissibility of Rebate Claim by Manmade/Cotton Fabric processores of duty paid from Deemed credit on grey fabrics

PJ/Case Study/2011-12/30

CASE STUDY

Prepared By:
CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]

Introduction:-

In the case under study, the assessee had been granted rebate of duty under Rule 18 of the Central Excise Rules, 2002. They were engaged in the processing of man made Fabrics/cotton. The duty on the exported goods was paid from deemed credit taken by them on input grey fabrics. Department raised objection that rebate were not admissible to the assessees as they were not taking credit of duty paid on grey fabrics as they were not processing grey fabrics directly from the manufacturers, therefore, grey fabrics subjected to various processes was not duty paid. And the assessees had wrongly availed deemed credit therefore, rbate of duty was not available to them.

M/s Bherwa Textile Industries, Pali v/s Deputy Commissioner, C. Ex. Division, Jodhpur
[Order-in-Original no. 236 to 294/2010-R, Dated: 30.11.2010]

Brief Facts:-

- Assessees are manufacturers engaged in processing of Man Made fabrics/Cotton Fabrics falling under Chapter Heading No. 55/52 of the First Schedule to the Central Excise Tariff Act, 1985.

- They filed rebate claims under Rule 18 of the Central Excise Rules, 2002 read with Notification No. 40/2001-CE (NT) dated 26.06.2001 as they had exported printed cotton fabrics on payment of duty. The duty was paid through deemed credit. This credit was availed by the assessees on the grey fabrics used in the manufacture of processed fabrics.

- The Rebate claims were sanctioned to the assessees. Later on it was observed that the assessees were availing deemed Cenvat credit under Rule 11 of the Cenvat Credit Rules, 2002 in respect of processed fabrics being manufactured and cleared for export by them. It was also observed that the main input being used by the assessees was woven grey fabrics not subjected to any process falling under sub-heading 52, 54 & 55 respectively. The Central Government by issue of Notification No. 53/2001-CE(NT) dated 29.06.2011 and Notification No. 06/2002-CE(NT) dated 01.03.2002 under Rule 11 of the Cenvat Credit Rules, 2001 declared the inputs for the purpose of allowing deemed credit but no duty was payable on inputs (grey fabrics either of cotton or Man Made Fibre) till February, 2002 and in the Budget 2002, an opportunity was given to grey fabrics manufacturers to avail Cenvat credit of yarn used in weaving grey fabrics and if they do not want to avail credit, no duty was leviable on grey fabrics in terms of Notification No. 14/2002-CE(NT) dated 01.03.2002.

- Department contended that the assessees were not taking credit of duty paid on grey fabrics as they were not processing grey fabrics directly from the manufacturers, therefore, grey fabrics subjected to various processes was not duty paid. Thus, the respective assessees availed wrong deemed credit at the time of clearance of their final products which had not been produced from the inputs eligible for availing deemed credit. The inputs being used by the assessees were exempt from payment of duty leviable under Central Excise Act, 1944 and were also chargeable to nil rate of duty leviable under the Additional duties (Goods of special importance Act, 1957). The assessees availed wrong deemed credit on the final product, which had not been produced from the inputs eligible for availing deemed credit. Therefore, it appeared that rebate of duty paid on goods cleared for export through deemed credit had been refunded erroneously.

- Accordingly, Revenue issued show cause notices to the assessees for recovery of amount of rebate sanctioned to them erroneously in terms of Section 11A of the Central Excise Act, 1944.

Assessee’s Contentions:-

Assessee made following submissions before the Deputy Commissioner:

- That they had filed a rebate claim under Rule 18 of the Central Excise Rules, 2002 on the grounds that they had exported processed fabrics through Merchant exporter and that the show cause notice alleges that rebate claim was sanctioned vide OIO No. 83/03-CE (Rfd) dated 06.05.2033 passed by the DCCE, Jodhpur has been erroneously granted and that the same should be recovered back.

- That the Hon’ble Finance Minister Mr. P. Chidabaram presented the Finance Budget Speech at point 123 & 124 referred these points as under -

“123- At present excise duties are levied at the fibre and tarn stage and there is only an additional excise duty, in lieu of sales tax, on fabrics. This is one of the most deficient ways of taxation as it results in very high duties on inputs, which encourages evasion; it does not capture addition, and it denies the industry an opportunity of claiming Modvat input credit on capital goods, chemicals and yarn. I, therefore, make the following proposals:

I propose to impose a basic excise duly of 5% on cotton fabrics and 10% on other fabrics will be collected at the processed fabrics stage. The processors will be a position to Modvat the duly paid on yarn imputed on the basis that yarn accounts for 50% of the value of finished fabrics. I have adopted a sample procedure of imputed value to avoid the imposition of basic duly on grey fabrics, which are manufactured by thousands of power looms. Such power looms will, therefore, continue to be outside excise net. Composite mills and textile processors will be able to avail themselves of Modvat facilities hitherto not extended to them. This restructuring of excise duty, together with the substantial reduction in customs duties on selected machinery and on inputs for the textile sector, should provide a major boost to the textile industry. I believe that this will also simplify the calculation of drawback rate for garment exporters.”

- That for this purpose Rule 57A (2) was instilled which gave the power to the government to issue deemed credit facility. The wording of Rule 57A (2) was referred and it was submitted that as per the Budget Speech of Hon'ble Finance Minister and previsions of Rule 57 A (2) of Central Excise Rules, 1944, deemed credit was allowed to the manufacturers of textile fabrics to compensate the duty incidence on yarn, dyes, chemicals & packing materials.

- That they have availed deemed Cenvat Credit under Rule 11 of Cenvat Credit Rules, 2002 in respect of processed fabrics being manufactured and cleared for export. Rule 11 of the Cenvat Credit Rules, 2002 was referred and it was submitted that the Central Government had powers to declare inputs on which it will be deemed that the duties of excise or additional duly of custom has been discharged by the assessee up to the extent that will be mentioned in the Notification. Further the rule also makes it clear that the amount of duly that will be deemed to be paid, that much amount will also be available for availing Cenvat credit. It was also said that the said inputs were not required to be used directly in the manufacture of the final products but should have some existence in the final product. The Notification No. 53/2001-CE(NT) dated 29.6.2001 and Notification No. 06/2002-CE (NT) dated 01.03.2002 were issued in this Rule and deemed credit was allowed.

- That Notification No. 06/2002-CE was issued under the erstwhile Cenvat credit Rules, 2001 which reads as under:

In exercise of the powers conferred by rule 11 of the CENVAT Credit Rules, 2002 and in supersession of the notification of the Government of India in the Ministry of finance (Department of Revenue) No. 53/2001-Central Excise (N.T.), dated the 29th June, 2001 published in the Gazette of India vide number G.S.R. 497 (E), dated the 29th June, 2001, except as respects things done or omitted to have been done before such supersession, the Central Government, hereby declares the following inputs (hereinafter referred to as the "declared inputs") and final products falling within the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the said First Schedule), as specified in the Table below. namely‑

S. No.	Inputs	Final Products
(1)	(2)	(3)
(2)	(i) Goods falling within heading No. 51.05,51.06,51.07,52.05,52.06,53.06,53.07,53.08,54.02,54.03,54.04,54.05,55.01,55.02,55.03, 55.04, 55.05, 55.06, 55.07, 55.09, 55.10, 56.04, 56.05 or 56.06 of the said first schedule. (ii) Dyes, chemicals, consumables, packing material falling within the said first schedule	The following goods manufactured by a manufacturer other than a composite mill, namely- (i) Processed fabrics falling under Chapter 52 (except sub-heading Nos. 5207.20, 5206.20 and 5209.10) 54 (except sub-heading Nos. 5406.10 and 5407.10) 55 (except sub-heading falling under chapter Nos.5511.10,5512.10,5513.10 and 5514.10) or 60.01, 60.02 (except sub-heading No. 6002.10) or (ii) Fabrics of cotton or man-made fabrics, whether or not processed, falling under heading Nos. 58.01, 58.02 or 58.06 (except sub-heading No. 5806.20) of said first schedule.

It was submitted that that the above point no. 2 granted the assessee deemed credit since they were not composite mill at that time. The tariff entries revealed that the credit was given for the yarn, fibers and dyes, chemicals and packing material. The assessee was processing only cotton fabrics at that time and so the above tariff headings are relevant. Thus the deemed credit was given for the yarn only and not on the fabrics, as the assessee were receiving the grey fabrics and duty was on yarn. Therefore the deemed credit rather than the actual credit was allowed to them.

- That that the aforesaid credit is available even if the grey fabrics is exempt or chargeable to Nil rate of duty and that the basic purpose for extending the deemed credit was that the grey fabric is exempt and arriving from unorganized power loom sector. It was further submitted that according to the statement of the Finance Minister, the deemed credit is extended for this basic reason. That the assessee is availing deemed credit as per the rates prescribed in the Notification. That the rates in the Notification are given as the grey fabric used as input was exempt. That the government had also brought out this scheme to provide the benefits of the credit facility prevailing at that time to the processors. That the contention in the show cause notice does not satisfy that if the input used was exempt then the Cenvat credit was not available for the assessee.

- That Rule 11 reproduced above clearly says that the Government will declare the inputs and presume that the duty has been paid on these inputs. That it is clear from the wording itself that it is not necessary that duty should he paid on such inputs. That the stand of the department is totally erroneous that duty is not paid on grey fabrics and as such deemed credit is not available. That the Rule itself says that the deemed credit will be available by presuming that the duty is paid so that rebate claim through the OIOs have been rightly allowed.

- That there are many cases which allow deemed credit to the manufacturer of final processed fabrics falling under chapter 52, 54 and 55. That there was the decision on the same issue before Gujarat High Court of Mangal Textile Mills (I) Pvt. Ltd where the decision of Delhi Tribunal had been upheld by the High Court (The CEGAT vide its order no. 292-293/2002-D has passed the decision in favour of the assessee by saying that the assessee was entitled to deemed credit on the inputs and that while passing this decision reliance was also placed on the Board’s Circular No. 243/77/96 dated 3.9.96.

MANGAL TEXTILE MILLS (I) PVT. LTD. Versus COMMR. OF C. Ex. AHMEDABAD [2003 (159) E.L.T. 464 (Tri.-Del.)]

Cenvat/Modvat – Deemed credit – Inputs used in the manufacturer of final goods coming under sub-heading 5801.21 of Central Excise Tariff Act, 1985 – Heading 58.01 is included in the list of final product in Notification No. 29/96-C.E. deemed credit not deniable- Benefit of Notification No. 20/96-C.E. admissible [para 2]

Cenvat/Modvat - Deemed credit - Inputs used in the manufacture of grey fabrics - to light of Board's Circular No. 243/77/96-CX. dated 3-9-1996 deemed credit admissible [pares 3, 4]

Assessee further submitted that there are many decisions of the Tribunal saying that deemed credit is    available if the inputs are mentioned in the notification. He reproduced some of such decisions as below‑

- COMMISSIONER OF C. EX., AHMEDABAD Versus SUZUKI SYNTHETICS [2008 (222) E. L. T. 279 (Tri. - Ahmd.)]

Cenvat/Modvat - Deemed credit on inputs - Grey fabrics - Notification No. 7/2001-C E. (N.T.), credit thereunder denied as grey fabrics not mentioned therein as inputs - Yarn used as input for grey fabrics also declared as inputs for processed fabrics - Yarn is an input to grey fabric which is an input to processed fabrics - Normally Cenvat credit available on inputs used in manufacture of final products - Deemed credit available to grey fabrics - Explanation-I to notification ibid. [paras 8.1, 8.4]

Deemed credit - Gray fabrics Notification No. 7/2001-C.E. (NT) it is not as if each and every goods mentioned as inputs in said notification required for every finished products mentioned as final product therein - Deemed credit takes into account broadly the inputs required and probable duty incidence on approximate basis - Grey fabrics though not mentioned as inputs covered under Notification ibid. [pare 8.2]

- DELITE PROCESSORS Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA [2009 (243) E.L.T. 731 (Tri. – Del.)]

Cenvat/Modvat - Deemed credit Grey cotton and unprocessed man-made fabrics - Used as input in final product viz. processed cotton and manmade fabrics Notification No. 60/2002-C.E., permitting deemed credit, did not require one to one co-relation between the inputs and final products specified therein - Assessee/Processor held entitled to deemed credit on non-duty paid fabrics as duty paid yarn was present in final product even though it was not directly used therein - Rule 57A of Central Excise Rules 1944 - Rule 3 of Cenvat Credit Rules, 2004. (paras 7.3, 7.4, 7.5)

Assessees submitted that according to the above cases deemed credit cannot be denied on the grey fabrics used for the manufacture of the final products. He submitted that the notifications prescribe the list of eligible inputs and contended that deemed credit cannot be denied on the inputs that are made eligible in the Notification. They contended that one to one correlation is also not required between the inputs and the final products as per the above cases.

- Assessees further cited the case of CL v/s MB Dyers [2010-TIOL- 160 HC DFL-CX] wherein the Delhi High Court has also said that though Inputs are not directly being used by the manufacturers of the final product declared in the notification but are contained in final product then also the credit is admissible and that the Rule 11 requirement is satisfied as the processed fabrics are final products containing the yarn/fiber. They submitted that relying on these cases they are eligible for the deemed.

- Assessee reiterated that when the inputs are prescribed in the notification then they are eligible for the deemed credit. They further contended that there are even decisions where it is said that it the Notification does not particularly prescribe the input but the input is used in the manufacture of the grey fabric then also deemed credit on such inputs will be available. In support he submitted extracts of the following case laws:

DAMINI PRINTERS (P) LID. Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA [2005 (191) ELT. 653 (Tri - Del.)]

Cenvat/Modvat- Deemed Credit - Grey fabrics brought into factory for processing, not declared as input for the purpose of deemed credit under Notification No. 6/2002-C.E. (N T) issued under Rule 11 of Cenvat Credit Rules, 2002 – Deemed credit available if declared Inputs are contained in final products - Declaration of inputs which are used directly by the manufacturer of final products not necessary Rule 13 of Cenvat Credit Rules, 2004 (paras 5, 6)

COMMISSIONER OP CENTRAL EXCISL, JAIPUR-II Versus BOHRA Synthetics P. LTD, [2008 (230) EL.T- 533 (Tri. –Del.)]

Refund - Deemed credit, unutilized credit - Yarn used in manufacture of grey fabric which in used in manufacture of man-made fabrics which is exported - though yarn was not declared as inputs eligible for taking deemed credit, but as it was contained in gray fabrics, exporter of man-made fabric held entitled to take credit thereon - Refund of same allowed - Rule 5 of Cenvat Credit Rules, 2001. ( paras 3, 4)

Assessees submitted that according to the cases cited supra, the inputs not declared in the notification but are contained in the final product are eligible for deserved credit, so when inputs not mentioned in the notification can be eligible then they have availed credit on only those inputs that are made eligible through the Notification.

- Assessees further submitted that when the deemed credit availed is not questionable, then the rebate claim that is granted is not erroneous and that the rebate claim were filed under Rule 18 of Central Excise Rules, 2002 on the grounds that they have exported the goods through the merchant exporters.

- They submitted that according to the Rule 18, the Government through notifications can grant rebate to the assessee imposing certain conditions and limitations. That they had filed the rebate claim as the goods were exported by them and so they were granted its refund also. That refund of the deemed credit is allowed and that when they have filed the rebate claim then it is to be sanctioned. If the Cenvat credit is to be disallowed then there are separate Rules for the same. The show cause notice be issued under those Rules and the proceedings cannot be started against them when the rebate claim is sanctioned to them.

- Assessees submitted further that if the assessee has wrongly taken deemed credit then the show cause notice should have been issued to them under Rule 12 of the erstwhile Cenvat Credit Rules that have already been done by the department, therefore, issuance of this show cause notice is not tenable according the rules and, hence, such show cause notice should be set aside.

- They further submitted that in this case the demand for the recovery of deemed credit is already issued to the assessee. That the second show cause for recovery of rebate claim will mean double demand of same amount. That the deemed credit is allowed of the duty paid on the yarn, fiber, dyes, chemicals, packing material etc. but not on grey fabrics. That this is as Board’s Circular No. 243/77/96 dated 3.9.96. That if duty were paid on grey fabrics then the actual credit would have been available. This is not the case.

The circulars and clarifications issued by the Board are not advisory in character binding on all Central Excise Officers as such these have to be treated to have been issued under Section 37B of the Central Excise Act, 1994 even though the said provisions were not cited in the Circular/clarification or Explanatory Notes. That in such case the department is not allowed to plead that such circulars are not valid on the grounds that such circulars are inconsistent with the statutory provisions. That the show cause notice issue asking them to deposit the rebate claim sanctioned is totally erroneous and is liable to be set aside.

During the personal hearing, the assessees made the following additional written submissions: -

- That the basic purpose for extending the deemed credit was that the grey fabric is exempt and arriving from unorganized power loom sector The statement given by the Finance Minister clearly shows that the deemed credit is extended for this basic reason. That the assessee has availed deemed credit as per rates prescribed in the Notification. That the rates in the Notification are given as the grey fabric used as input was exempt. That the government had also brought out this scheme to provide benefits of credit facility prevailing at the relevant time to the processors. That the contention in the show cause notice does not satisfy that if the input used was exempt then the Cenvat credit was not available for the assessees.

- That a reference application was filed by the CCE, Ahmedabad before the Gujarat High Court who vide their order dated 23.6.2003, summarily rejected the Reference Application of the department stating that no substantial question of law arises from the order of the Tribunal.

- That the C&AG of India on the above subject has replied the Assistant Commissioner (Audit), Central Excise Commissionerate, Jaipur-II that “above mentioned paras have since been vetted for and shall not been pursued further”. The above stand of the CAG strengthens the view that the issue has already been settled. That the Ministry in the comments has stated that “The very issue i.e. grant of deemed credit on grey fabrics used in the manufacture of processed fabrics has recently been taken up In the litigation before the Gujarat High Court also the CEGAT vide its order No. 292-293/2002 -D of 21.11.2002 has accepted contention of the unit therein that the input referred to as item no-2 in col. 2 of the Notification have gone into the manufacture of the grey fabrics and held that the appellant was entitled to deemed credit on the inputs referred under col. 2 in the Notification. In arriving at this conclusion, Board's Circular No- 243/77/96 was also referred to and relied upon”

That applying this analogy, deemed credit is allowed to the assessee as the Comptroller and Auditor General of India also says that the issue is already settled, hence, the ratios of decisions also applies in their case and deemed credit be allowed to the assessees.

Assessees further submitted that the deemed credit availed is not questionable then the rebate claim that is granted is also not erroneous. That the rebate claims were filed under Rule 18 of Central Excise, Rules, 2002 on the grounds that they had exported the goods through the Merchant Exporter. That if the assessee has wrongly taken deemed credit then the show cause notice should have been issued to them under Rule 12 of the erstwhile Cenvat Credit Rules that have been done by the department. That the issuance of the stow cause notice is not tenable according the rules and that such show cause notices should be set aside

- That in this case the demand for the recovery of deemed credit is already issued to the assessees. That the second show cause for recovery of rebate claim will mean double demand of same amount. That the deemed credit is allowed of the duty paid on the yarn, fibers, dyes, chemicals, packing material etc. but on grey fabrics. That this is as per Board's Circular No. 243/77/96 dated 3.9.96. That if duty were paid on grey fabrics then the actual credit would have been available. This is not the case.

That the circulars and clarifications issued by the Board are not advisory in character but are binding on all Central Excise Officers as such these have to be treated to have been issued under Section 37B of the Central Excise Act, 1994 even though the said provisions were not cited in the Circular/clarification/Explanatory Notes. That in such case the department is not allowed to plead that such circulars are not valid on the grounds that such circulars are inconsistent with the statutory provisions.

Reasoning of the Order-in-Original:-

- The learned Deputy Commissioner found that the adjudication proceedings in these show cause notices were kept pending in call book as the A. G. Rajasthan, Jaipur had objection on availment of deemed credit by the independent textile fabrics processors engaged in processing of grey fabrics. These paras were converted into SOF then DAP and finally AP. And pursuant to Audit paras, show cause notices were issued.

- The learned Deputy Commissioner noted that the rebate claims were granted by the Order-in-Original was proposed on the following grounds: -

· The assessees availed deemed cenvat credit under Rule 11 of the Cenvat Credit Rules, 2002 in respect of processed fabrics being manufactured by them.
· The main inputs used for manufacture of processed fabrics falling under Chapter 52, 54 and 55 of the First Schedule to the Central Excise tariff Act, 1985 is woven grey fabrics not subjected to any process falling under sub-heading 5207.20, 5208.20, 5209.10, 5406.10, 5511.10, 5512.10, 5513.10 and 5514.10.
· The Central Government by issued of Notification No. 53/2001-CE(NT) dated 29.06.2001 and Notification No. 06/2002-CE(NT) dated 01.03.2002 under Rule 11 of the Cenvat Credit Rules, 2001 declared the inputs for the purpose of allowing deemed credit but no duty was payable on inputs (grey fabrics either of cotton or Man Made Fibre) till February, 2001.
· In the Budget 2002, an opportunity was given to grey fabrics manufacturers to avail cenvat credit of yarn used in weaving grey fabrics and if they do not want to avail credit, no duty was leviable on grey fabrics in terms of Notification No. 14/2002-CE(NT) dated 01.03.2002.
· The assesses (processors) were not taking credit of duty paid of grey fabrics as they were not purchasing grey fabrics directly from the manufacturers, therefore, grey fabrics subjected to various processes was not duty paid.
· Thus, the respective assesses availed wrong deemed credit at the time of clearances of heir final products which had not been produced from the inputs eligible for availing deemed credit.
· The inputs being used by the assessee were exempt from payment of duty leviable under Central Excise Act, 1944 and were also chargeable to nil rate of duty leviable under the Additional duties of excise (Goods of special importance Act, 1957).
· The assessee availed wrong deemed credit on the final product, which had not been produced from the inputs eligible for availing deemed credit. Therefore, it appeared that rebate of duty paid on the goods cleared for export through deemed credit had been refunded erroneously.

- The Deputy Commissioner found that the comments of the ministry on the afore-said Audit paras have been forwarded to the C & AG of India, New Delhi by Ministry vide Letter dated 12.12.2003 and 30.11.2004. The C& AG have informed that “the above mentioned paras have since been vetted and shall not be pursued any further.”
- The comments of the Ministry dated 12.12.2003 in Para 4 were referred which stated that

“The very issue i.e. grant of deemed credit on grey fabrics used in the manufacture of processed fabrics has recently been taken up in the litigation before Gujarat High Court also CEGAT vide its Oder No. 292-293/2002-D of 21.11.2002 had accepted contention of the unit therein that the input referred to as item no. 2 in col. 2 of the Notification have gone into the manufacture of Grey Fabrics and held that the appellant was entitled to deemed credit on the inputs referred under col- 2 in the Notification. In arriving at this conclusion, Board’s Circular No. 243/66/96 dated 03.09.96 was also referred to and relied upon.”

- In view of the above, the learned Deputy Commissioner proceeded to decide the show cause notices. It was informed to the Deputy Commissioner the against the CEGAT’s Order dated 21.11.2002 in the case of Mangal Textile Mills v/s CCE, Ahmedabad [2003 (159) ELT 464 (Tri-Del)] a reference application was filed by the CCE, Ahmedabad before the High Court who vide their order dated 23.06.2003 summarily rejected the Reference Application of the Department by stating that no substantial question of law arises from the order of the Tribunal.

- It was found that the objection regarding the availability of deemed credit to the assessees is not being pursued by the CAG of India. It was found that the issue has been decided by the Tribunal in the case of Mangal Textile Mills v/s CCE, Ahmedabad [2003 (159) ELT 464 (Tri-Del)] and accepted the contention of the assesses that the input referred to as item no. 2 in col 2 of the Notification have gone into the manufacture of Grey Fabrics and held that the appellant was entitled to deemed credit on the inputs referred under col. 2 in the Notification. In arriving at this conclusion, Board’s Circular No. 243/77/96 dated 03.09.96 was also referred to and relied upon. “I find that Hon’ble Gujarat High Court vide their order dated 23.06.2003 summarily rejected the Reference Application of the Department stating that no substantial question of law arises from the order of the Tribunal”.

- It was found that in the case of CCE, Ahmedabad v/s Suzuki Synthetics [2008 (222) ELT 279 (Tri-Ahmd)] the issue has been decided that Deemed credit is available for grey fabrics.

- It was found that the Delhi High Court has also decided the issue in the case of CCE v/s M. B. Dyers [2010-TIOL-160-HC-DEL-CX] and held that though inputs are not used directly by the manufacture of final products declared in the notification but are contained in the final products and though not mentioned in the table of inputs referred to in the notification, comprised of yarn/fibre which are the inputs in respect of grey fabrics. The processed fabrics are the final products containing the yarn/fibre which satisfies the requirement of Rule 11.

- The Deputy Commissioner found force in submissions made by assesses to the extent that they conform to the above findings. In view of these findings, the assessee’s submissions that “in this case the demand for the recovery of deemed credit is already issued to the assesses and that the second show cause for recovery of rebate claim will mean double demand of same amount,” become irrelevant in the present case, however, the Deputy Commissioner found that the said contention per se does not carry force and does not stand scrutiny of merit and reason, as the show cause notices issued or denying a credit wrongly availed act to nullify the credit taken and the requirement of a separate action for recovery of the benefit of rebate already taken still remain alive, for which another show cause notice needs to be issued.

- The Deputy Commissioner found that the show cause notices propose recovery of the erroneous rebate sanctioned to the assessees. The grounds were that deemed credit wee not allowed to them, hence the payment made on the export of the goods through deemed credit was also wrong resulting in erroneous refund. However, it was found ha the objection regarding availability of deemed credit to the assesses has now been settled, as discussed in above para, resultantly, the question of recovery of erroneous rebate reasonably ceases to exist and the same stand settled in favour of the assesses.

Decision of the Adjudicating Authority:-

The proceedings initiated vide impugned show cause notice were dropped.

Conclusion:-

The concept of deemed credit was introduced to allow the cenvat credit even if the duty paid inputs are not received in the factory. The duty was paid on yarn/fibre stage but the processing was done by powerloom sector to manufacture grey fabrics. This sector was unorganized sector and they were out of preview of the central excise duty. Even Government was not able to bring them under Central Excise as majority of them are very small and unorganized. But the dying and printing of fabrics was done by power processors who were under central excise net. Thus, to bring them under cenvat credit scheme, the concept of deemed credit was introduced. They were able to take the deemed credit on clearance of their final product from the factory at a fixed rate. The exporter were benefited from the same as they were able to get the refund of this deemed credit.

But AG audit has raised the objection on this basic concept overall India. They said that the policy of the Government was wrong and they cannot give the credit when the goods are not received in the factory. Based on this, the huge demands were issued all over India. If these were confirmed then all the factories should have been sold by the department to recover the dues.

But this objection was against the Government policy but it is not supported by law. The provisions supported allowance of deemed credit. Hence all the demands were dropped. Even the AG has also settled the paras later on.

******

Comments

PJ/CASE STUDY/2011-12/30
02 November 2011

Post a Comment

Query

Comments

PJ/CASE STUDY/2011-12/30 02 November 2011

Post a Comment

Query

PJ/CASE STUDY/2011-12/30
02 November 2011