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

PJ/CASE STUDY/2010-11/25

09 October 2010

PJ/Case Study/2010-11/25

Case Study

Prepared By:

Sukhvinder Kaur LLB [FYIC]

And CA Rajani Thanvi

Introduction:

Interpretation of the legal provisions should be done carefully so that the intention of the law makers is fulfilled and not defeated. Since a business operate its all activities in an environment where legal framework provides the protection to the business for its rights and also making accountable for its liabilities. In case an interpretation of law if done wrongly or incorrectly can lead to an absurd result. When the clear cut language is used in the legal provisions they should be literally interpreted and not interpreted constructively to give them an ambiguous meaning. Moreover, the tax provisions granting the benefit of exemption or concession should be interpreted with the utmost care so that assessee is not deprived of the benefit government intended for him to avail. In the case under study the issue involved is the interpretation of the provisions of Notification No. 5/2006-CE(NT) dated 14.03.2006 which governed the refund of unutilised cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004.

Relevant Legal Provisions:

Relevant provision of Notification No. 5/2006-CE(NT) dated 14.03.2006: -

2. The claim for such refunds are submitted not more than once for any quarter in a calendar year

Provided that where:-

(a) the average export clearances of final products or the output service in value terms is fifty percent or more of the total clearances of final products or output services, as the case may be, in preceding quarter; or

(b) the claim is filed by Export oriented unit, the claim for such refund may be submitted for each calendar month.

Relevant provision of Circular no. 120/01/2010-ST: -

3.3 Quarterly refund claims [para 2(d) above]:

As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there should not be any objection in allowing refund of credit of the past period in subsequent quarters. It is possible that during certain quarters, there may not be any exports and therefore the exporter does not file any claim. However, he receives inputs/input services during this period. To illustrate, an exporter may avail of Rs.1 crore as input credit in the April – June quarter. However, no exports may be made in this quarter, so no refund is claimed. The input credit is thus carried over to the July-September quarter, when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made. The exporter should be permitted a refund of Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit of Rs.1 crore availed in April-June quarter. The illustration prescribed under para 5 of the Appendix to the notification should be viewed in this light. However, in case of service providers exporting 100% of their services, such disputes should not arise and refund of otherwise in order. Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it is noticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can be demanded from him.

M/s Rangdhara Polymers v/s Assistant Commissioner, Ahmedabad-II

[Order-in-Appeal No. 196/2010(Ahd-II)CE/CMC/Commr(A)/ Ahd/S/73(A-II)/10, dated 24.08.2010]

Brief Facts:

- The appellant-assessee was supplying excisable goods to a 100% EOU. Since cenvat credit had been accumulated on the inputs used by them and remained unutilised, they filed for refund of accumulated cenvat credit in terms of the provisions of Rule 5 of the Cenvat Credit Rules, 2004 for the periods July – Sept, 2007, July – Sept, 2008 and Oct - Dec, 2008.

- Department issued show cause notice to the appellant alleging that as per the condition prescribed in the Notification No. 5/2006-CE(NT) dated 14.03.2006, the refund was allowable if the average export clearances of final products in value terms is fifty percent or more of the total clearances in the preceding quarter. But the refund claim filed by the appellant did not fulfill this condition prescribed under the said Notification.

- The Adjudicating Authority rejected the refund claim of the appellant.

- Against this order, the appellant filed appeal before the Commissioner (Appeal).

Appellant’s Contentions:

¨ Appellant contended that the condition prescribed in the Notification No. 5/2006-CE(NT) was prescribed for filing of monthly or quarterly refund claims. It was submitted that the analysis of the condition lead to the conclusion that

- The claim for such refunds are submitted not more than once for any quarter in a calendar year provided that where the average export clearances of final products or the output service in value terms is fifty percent or more of the total clearances of final product or output services, as the case may be in preceding quarter, the claim for such refund may be submitted for each calendar month.

- The claim for such refunds are submitted not more than once for any quarter in a calendar year provided that the claim is filed by Export oriented unit, the claim for such refund may be submitted for each calendar month.

¨ It was submitted that the learned Adjudicating Authority had wrongly interpreted the said provision of the Notification. The interpretation as explained in the aforesaid para was the correct interpretation and no other interpretation can be given to above para. Thus, it is clear that the rule deals with the filing of quarterly or monthly refund claim and nothing else.

¨ It was submitted that the rule itself says that the refund can be filed quarterly but if the assessee fulfils the condition than he may file the monthly refund claim. Thus it is not mandatory condition but the facility of filing of early claims is provided to the manufacturer or service provider.

¨ Appellant further submitted that a mere condition for filing of quarterly or monthly claims have been wrongly construed as a condition precedent for allowing the refund claim.

¨ Appellant relied upon the Board Circular no. 120/01/2010-ST which clarified the legal provisions of notification 5/2006-C.E. (N.T.). It was submitted that the Board has allowed the refund even in case where there is no export of services in a particular month. If the interpretation of learned Adjudication officer is accepted that it has to be more than 50% in a particular quarter then how the Board is saying that the refund will be allowed even if there is no sale in a particular month. It was submitted that from the Circular it was clear that refund of earlier period unutilized credit will also be allowed and there is no clause of allowing the refund claim only for the period when the clearances is more than 50%.

¨ It was further submitted that the Adjudicating Authority has incorrectly observed that the filing of monthly refund claim is mandatory. The word used is “May” Thus, the manufacturer may file the monthly refund claim but it is not compulsory for file the same.

¨ It was also submitted that the Adjudicating Authority in their own case and on the similar issue had sanctioned the Refund vide OIO No. 1103/REFUND/2010 dated 14.06.2010. Therefore, following the same order, the refund claim should have been sanctioned to the appellant.

Issue Involved:

The issue involved in this case was that

Whether the condition prescribed in the Notification No. 5/2006-CE(NT) was a safeguard and limitation on the assessee for filing refund claim or was the said condition related to filing of monthly or quarterly refund claim?

Decision of the Commissioner (Appeal):

Ø The Commissioner (Appeal) perused the relevant provision of Notification No. 5/2006-CE(NT) and held that from the same it was clear that the appellant had the additional facility to file the refund claim monthly, if their export clearance was more than 50% in the preceding quarter.

Ø It was held that in appellant’s case as their average export clearance was less than 50% so they had filed quarterly refund.

Ø It was held that the provisions of the Notification were very much clear and were in respect of facility for filing the refund claim either monthly or quarterly.

Ø It was held that the allegation made in the show cause notice and findings of the Adjudicating Authority was not in accordance with the provisions of the Notification No. 5/2006-CE(NT) and are given on incorrect interpretation of the provisions of the Notification.

Order of the Commissioner (Appeal):

Impugned order set aside. Appeal allowed.

Conclusion:

The learned Commissioner (Appeals) rightly interpreted the provisions of the Notification No. 5/2006-CE(NT) to give the benefit to the appellant which was intended by the law maker to be available to person who has accumulated cenvat credit but is unable to utilise the same. The learned Commissioner (Appeals) has correctly interpreted the law by allowing the filling of refund claim monthly if the export clearance was less than the prescribed limit in the preceding quarter. The legal provisions should be interpreted in the spirit they were enacted so that the graph of increasing litigation comes down and the assessees feel painless.

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Comments

M.RAM KUMAR on 10 October, 2010 wrote:

THE option to file monthly refund claim is restricted only 100% EOU and others. Not evry assessee can file monthly refund calim. This is an important condition. It appears that Commr. Appeals's Order is correct. In Refunds under Notn 5/2006 CE a lot of puzz is made by sanctioning officers which cn be avoided. by, M. RAM KUMAR, BNAGLORE

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PJ/CASE STUDY/2010-11/25
09 October 2010

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