Refund of Unutilised Cenvat Credit under Rule 5 of CCR, 2004

PJ/Case Study/2010-11/39

CASE STUDY

Prepared By:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Parag Ghate, B.Com

Introduction:

To remove the payment of tax on tax, the cenvat credit of duty paid on inputs, capital goods and input services was allowed to a manufacturer and the said cenvat credit could be used to pay the excise duty on its final product. However, if manufacturer is exporting his goods under bond then the cenvat credit was not utilised and was getting accumulated with the assessee, the Rule 5 of the Cenvat Credit Rules, 2004 provided for refund of accumulated credit. But in the case under study, the refund was being denied to the Noticee on the ground that the refund claim was not filed within time in terms of Section 11B, that in terms of Notification No. 5/2006-CE, the average export clearances of final products in value terms was less that fifty percent of the total clearances of final products in preceding quarter.

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 ;.

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:-

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

In the Matter of M/s. Rangdhara Polymers
[Order-In-Original No. 1103/Refund/2010, Dated: 14/06/2010]

Brief Facts:

- Noticee is engaged in the manufacturer of Colour concentrate plastic granules (Master Batch) falling under Sub-Heading 32.06 of the First Schedule to the Central Excise Tariff Act, 1985. They were supplying their finished goods to 100% EOU at Nil rate of duty. This resulted in accumulation of cenvat credit which remained unutilized with them.

- Thereafter, Noticee had filed a refund claim of unutilized Cenvat Credit in terms of Notification No. 5/2006-CE (NT) dated 14.03.2006 issued Rule 5 of the Cenvat Credit Rules, 2004, for the period from April, 2007 to June, 2007 on the ground that the Tribunal vide Order No. A/96-97/WZB/AHD/2010 dated 25.01.2010 had held in their own case that time limit under Section 11B of the Central Excise Act, 1944, does not apply in case of refund of unutilized credit.

- Revenue contended that since the refund claim was filed beyond one year and it appeared the decision of the Tribunal relating to limitation of time had been rendered in the context of refund of accumulated deemed Cenvat credit. It was also their contention that the average export clearances of final products of the Noticee in value terms was not fifty percent or more of the total clearances of final products in the preceding quarter.

- Revenue issued show cause notice on the ground that the Noticee’s 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 submitted that the show cause notice is contending that Notification No. 5/2006-CE (NT), dated 14.03.2006 provides that refund claim is allowable if the average export clearances of final products in value terms is fifty percent or more of the total clearances of final products in the preceding quarter. It is alleged that as the total clearance vale of the previous quarter to April to June 2007 is less that 50 percent therefore, the condition prescribed in the Notification is not fulfilled. In this regard, it was submitted that Notification No. 5/2006-CE (NT) does not prescribe such a condition for allowing refund claim. The said condition has been prescribed for filing of refund claim and has nothing to do with allowing of refund claim filed by an assessee under the said Notification issued under Rule 5 of the Cenvat Credit Rules, 2004.

Noticee also submitted that the entire provision is required to be read as a whole and not in separate parts to give the same an unambiguous meaning as has been done in the impugned show cause notice. The interpretation of the said provision in the impugned show cause notice has defeated the purpose of the Notification and has rendered the same as unworkable. Therefore, the said interpretation placed by the Department is required to be set aside.

Noticee submitted that the in the show cause notice it was also alleged that they had not submitted the documents in original together with enclosures and the true and correct worksheet to substantiate and correlate the same with the claim. In this regard they submitted that the said allegation is not true. This is consequential refund and the original documents along with original claim. They had submitted the original documents alongwith enclosures as annexure to our refund claim, at the time of filing the same for the quarter April’ 07 to June’ 07. It is further submitted that only recently they have received the original documents back from the department before the issuance of the above mentioned show cause notice. They are again submitting the original documents along with the enclosures pertaining as well as worksheets to the relevant quarter. Further, they submit that no particular format is prescribed for the submission of the information. Even if the revenue wants the information in the documents in a particular format they should forward us the format of the worksheet and we will prepare and file the same with the department.

Noticee submitted that Section 11B does not define the time limit for the refund of unutilized credit. Section 11B provides the time limit for other refund claime. Though the notification says that the provision of Section 11B will be applicable to refund of unutilized credit but the Section does not prescribe the method of computing time limit. The time limit of one year is to be computed from the date of taking cenvat credit or from the date of export of goods from factory or from the date of export of goods or from the date when the unutilized credit was lying with the assessee. When the same is not clear then the appellant cannot compute the time limit. Thus, the provision of section 11B is not applicable on the refund of unutilized cenvat credit.

Noticee further submits that the Tribunal has allowed their appeal on the ground of limitation for the period of April, 07 to June, 07. But the show cause notice says that the Tribunal’s decision relating to limitation of time appears to have been rendered in the context of accumulated deemed credit. The notice sumbit that he has never taken deemed credit but as taken the actual cenvat credit. The Tribunal has allowed the appeal after considering all the facts as well as submissions of Revenue. This approach of the department by not following decision of the 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.

Noticee relied upon the 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)] andModi Cement Ltd v/s CCE, Raipur [2000 (12) ELT 982 (Tri)].

Further reliance was placed on 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)], andFabworth (I) Limited v/s Commissioner of C. Ex. & Cus, Nagpur [2007 (213) ELT 136 (Tri-Kolkata)].

Issue Involved: -

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?

Discussions & Findings: -

The learned Assistant Commissioner noted that the Tribunal in Noticee’s own case had 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)].

It was held that Rule 5 of the Cenvat Credit Rules, 2004, provides for utilization of Cenvat Credit in respect of input or input service by the manufacture used in the manufacture of final products cleared for export under bond or letter of undertaking towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty; or service tax on output service. The Rule further provides that where such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund subject to the safeguards, conditions and limitations specified therefor.

Reference was made to the provisions of Notification No. 5/2006-CE(NT) and it was held that the provisions of Section 11B have been specifically made applicable to the refund claim of un-utilized Cenvat Credit Rule 5 of the Cenvat Credit Rules, 2004. It was noted that the Tribunal had, however, held that time limit under Section 11B of the Central Excise Act, 1944, does not apply to accumulated credit.

In light of the decisions cited by the Noticee which stipulate that any order passed by higher authority has to followed by the lower authority, the present proceeding need to be dropped. Consequently, the Assistant Commissioner intended to sanction the refund claim.

With regard to charge that the average export clearances of final products of the Noticee in value terms was not fifty percent or more of the total clearances of final products in the preceding quarter, the learned Assistant Commissioner found that the same related to frequency of filing the claim.

Decision of the Adjudicating Authority:-

Accordingly, Refund claim of unutilised credit was sanctioned to the Noticee.

Conclusion:-

The learned Assistant Commissioner rightly held that Section 11B were not applicable to the refund claim of the Noticee especially when the Tribunal had held so and the Assistant Commissioner was bound by precedent to follow the decision of the Tribunal. Also, the Notification No. 5/2006-CE was rightly interpreted to hold that the condition of average export clearances of final products of the Noticee in value terms was not fifty percent or more of the total clearances of final products in the preceding quarter was related to frequency of filing the claim.

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26 January 2011

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PJ/CASE STUDY/2010-11/39
26 January 2011