Refund of unutilised cenvat credit under Rule 5 of CCR, 2004

PJ/CASE STUDY/2010-11/11

Case Study

Prepared By:

CA Pradeep Jain,

Bharat Rathore, B. Com and

Sukhvinder Kaur, LLB [FYIC]

Introduction: -

In the case under study, the refund claim of unutilised cenvat credit was filed by the assessee who was supplying the goods to a 100% EOU. Part of the refund claim was rejected on the ground of limitation in pursuance of the first show cause notice. This order was set aside by the Hon’ble Tribunal holding that the provisions of limitation as contained in Section 11B will not apply to refund claim of unutilised credit. When the assessee filed consequential refund claim, the same was proposed to be denied by issuing of second show cause notice on the ground that the condition prescribed in the Notification No. 5/2006-CE(NT) that the average clearance should be 50 % or more in the previous quarter was not fulfilled. Whether the second show cause notice is valid in eyes of law? This is the subject matter of this case study.

Relevant Legal Provisions: -

Rule 5 of the Cenvat Credit Rules, 2004: -

5. Refund of CENVAT credit: - Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) service tax on output service,

and where for any reason such adjustment is not possible, the manufacturer or the provider of output service 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 or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.

Explanation: For the purposes of this rule, the words 'output service which is exported' means the output service exported in accordance with the Export of Services Rules, 2005.

Section 11B of the Central Excise Act, 1944: -

11B. Claim for refund of duty.-

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person:

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act;

Provided further that] the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.

(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] is satisfied that the whole or any part of the duty of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:

Provided that the amount of duty of excise as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to—

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant's account current maintained with the Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(e) the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(f) the duty of excise and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).

(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section

(4), may be rescinded by the Central Government at any time by notification in the Official Gazette.

Explanation.—For the purposes of this section,—

(A) "refund" includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(B) "relevant date" means,—

(a) in the case of goods exported out of India where a refund 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,—

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or

(ii) if the goods are exported by land, the date on which such goods pass the frontier, or

(iii) if the goods are exported by post, the date of dispatch of goods by the Post Office concerned to a place outside India;

(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;

(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;

(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;

(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(ea) in the case of goods which are exempt from payment of duty by a special order issued under sub-section (2) of section 5A, the date of issue of such order;

(eb) in case where duty of excise is paid provisionally under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;

(f) in any other case, the date of payment of duty.

(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction ;.

In the matter of M/s Rangdhara Polymers, Ahmedabad

[Order-In-Original no. 1104/Refund/2010 dated 14.06.2010]

Brief facts of the case: -

- The Noticee was engaged in the manufacture of masterbatches and was supplying excisable goods to a 100% EOU. As unutilized cenvat credit had been accumulated on the inputs used by them, they filed for refund of accumulated cenvat credit in terms of Notification No. 5/2006-CE(NT) dated 14.03.2006 issued under Rule 5 of the Cenvat Credit Rules, 2004.

- The claim was rejected by the Adjudicating Authority on the ground that Central Excise law did not recognize ‘deemed export’ made to 100% EOUs. Noticee filed further appeal wherein the Commissioner (A) rejected part of the claim as being time-barred in terms of Notification No. 5/2006-CE(NT) wherein it was prescribed that provisions of Section 11B were applicable to such refund claims and the date of export i.e. the date of export of products to 100% EOU would be the relevant date.

- The noticee then went in appeal before the Tribunal allowed the appeal of the noticee by placing reliance on the decisions of Sanghi Textiles [2006 (206) ELT 854 (Tri-Bang)] and Anjani Synthetics [2001 (132) ELT 688 (Tri-Mum)].

- The consequential refund claim was filed in pursuance of the Order No. A/96-97/WZB/AHD/2010 dated 25.01.2010 passed by the Tribunal in favour of the appellant.

- The Department issued a show cause notice to the noticee proposing to deny the refund claim on the ground that the refund claim was filed beyond one year. It was stated that the decision of the Tribunal relating to limitation of time had been rendered in the context of refund of accumulated deemed cenvat credit, therefore, the claim was liable to be rejected under Rule 5 of the Cenvat Credit Rules, 2004 read with Section 11B of the Central Excise Act, 1944.

Noticee’s Contentions: -

Noticee replied to the Show Cause Notice by raising the following contentions:

¨ The Noticee submitted that the Tribunal had allowed our appeal on the ground of limitation for the period of April, 07 to June, 07. But the impugned show cause notice says that the CESTAT decision relating to limitation of time appears to have been rendered in the context of accumulated deemed credit. It was submitted that the appellant have never taken deemed credit and the Hon’ble Tribunal has allowed the appeal after considering all the facts as well as submissions of learned DR. This approach of the department by not following decision of tribunal and finding fault in the same is just showing disrespect to the order of the Tribunal or to the Higher Authorities by the lower authorities. Once any order is passed on by the Tribunal it has to be followed till some competent authority has passed the decision against the order of the Tribunal.

¨ The Noticee relied upon the decision given in the case of UOI v/s Kamalkshi Finance Corpn [1991 (55) ELT 433 (SC)], Veena Commercial Corpn v/s UOI [1993 (68) ELT 569 (Bom)], Kumar Plywood Palace v/s Collector of Customs [1994 (71) ELT 295 (Tri)], Grasim Inds Ltd v/s CCE, Madras [1996 (82) ELT 457 (Mad)], Topland Engines v/s UOI [2008 (9) STR 331 (Guj)] and Modi Cement Ltd v/s CCE, Raipur [2000 (12) ELT 982 (Tri)]. Accordingly, it was contended that if the tribunal has passed some order it is the duty of the lower authorities to follow them. The department cannot even go for this that appeal is filed against the order of the Tribunal because the above cases analysis makes it very clear that till any competent court pass the order against the decision of the Tribunal, the Tribunal’s decision has to be followed. Noticee have filed the refund claim on the basis of the Tribunal’s order so the above show cause notice issued to them which violates the order of the Tribunal is liable to be quashed.

¨ The Noticee had further submitted that the show cause notice is alleging on them a separate issue, while already the Tribunal has given its decision on the appeal filed by the assessee. This was the second show cause notice issued pertaining to the refund claim of same amount and same period filed by them in which a separate issue was raised. It was contended that the department could not issued a second shoe cause notice for the same period and same amount. In this regard the noticee relied upon the judgment given in Bhagwati Electrical Enterprises v/s Commr of Cus, Hyderabad-II [2005 (189) ELT 467 (Tri-Bang)], Union of India v/s Food Specialties Ltd [1998 (97) ELT 402 (SC)], Solochana Amma v/s Narayanan Nair [1995 (77) ELT 785 (SC)], Texcomash Export v/s Commissioner of Customs, New Delhi [2005 (185) ELT 188 (Tri-Del)], Collector of Central Excise, Bangalore v/s A. V. R. A. & Co., Bangalore [1987 (31) ELT 238 (Tribunal)], Commissioner of Central Excise, Indore v/s Siddharth Tubes Ltd [2004 (170) ELT 331 (Tri-Del)], Para Food Products v/s Commissioner of Central Excise, Hyderabad [2005 (184) ELT 50 (Tri-Bang)], Rammapati Exports v/s Commissioner of Customs (Port), Kolkata [2006 (203) ELT 107 (Tri-Kolkata)], and Fabworth (I) Limited v/s Commissioner of C. Ex. & Cus, Nagpur [2007 (213) ELT 136 (Tri-Kolkata)].

Issue before the Adjudicating Authority: -

The issue before the Adjudicating Authority was that

Whether the order passed by the Tribunal was binding on the Lower Adjudicating Authority? Whether the limitation was applicable on the refund claim when the Tribunal had held that the limitation was not applicable to the refund of unutilised credit when relevant date in terms of Section 11B was not ascertainable?

Reasoning of the Order-in-Original: -

The learned Adjudicating Authority held as under: -

Ø The Adjudicating Authority referred to the provisions of Rule 5 of the Cenvat Credit Rules, 2004 and of Notification No. 5/2006-CE(NT) and held that the provisions of Section 11B had been specifically made applicable to the refund claims of unutilised cenvat credit under Rule 5. It was held that the Tribunal had, however, held that time limit under Section 11B of the Central Excise ACT, 1944, does not apply to accumulated credit.

Ø The Adjudicating Authority held that in the light of the decisions cited by the noticee which stipulate that any order passed by higher authority has to be followed by the lower authority, the present proceedings are dropped and the refund claim is sanctioned.

Decision of the Adjudicating Authority: -

Refund claim of unutilised credit was sanctioned to the Noticee.

Conclusion: -

The learned Adjudicating Authority rightfully decided the matter in favour of the assessee. When the Tribunal which is a higher forum has decided the issue then the Lower Adjudicating Authorities are bound by precedent to implement the verdict of the Tribunal. The Lower Authorities cannot act contrary to the order of the Tribunal. The only remedy available to the Customs Authorities is to file appeal in the higher forum than the Tribunal.

Also, when an issue has been decided for a period in pursuance of one show cause notice then a second show cause notice cannot be issued for that period. Other wise there will be no end to the litigation and the purpose of dispensing justice will be defeated.

******

Comments

PJ/CASE STUDY/2010-11/11
08 July 2010

Post a Comment

Query

Comments

PJ/CASE STUDY/2010-11/11 08 July 2010

Post a Comment

Query

PJ/CASE STUDY/2010-11/11
08 July 2010