Validity of second Show cause notice

PJ/Case Study/2010-11/22

Case Study

Prepared By:

Sukhvinder Kaur LLB [FYIC]

And Mayank Palgauta

Introduction:

The Government has initiated many measures to encourage exports from the country. And it is also imperatively provided that the taxes should not be exported but only the goods. However, when an assessee is exporting its goods under Bond without payment of duty and in the process accumulates unutilised cenvat credit of duty paid on inputs, Rule 5 of the Cenvat Credit Rules, 2004 provides for refund of the unutilised cenvat credit. However, this is easier said than done because the trend of "Uncover...Discover...Discard" have been adopted by the department. After the refund claim is filed, the Department issues show cause notice to deny the same and if in appeal an order is passed in favour of the assessee and he goes to claim consequential refund, he is again faced with a show cause notice. This is a situation which was faced by the assessee in the case under 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.

Para 4 of Notification No. 05/2006-CE dated 14.03.2006:

“The refund is allowed only in those circumstances where a manufacturer or provider of output service is not in a position to utilize the input credit or input service credit allowed under rule 3 of the said rules against goods exported during the quarter or month to which the claim relates (hereinafter referred to as ‘the given period’).”

In the matter of M/s Raj Polymers & Chemicals v/s Deputy Commissioner, Jodhpur

[Order-in-Original No. 124/2010-R dated 01.07.2010]

Brief Facts:

- Noticee is a 100% EOU engaged in the manufacture and export of Guar Gum. They were availing cenvat credit of excise duty paid on the inputs like Furnace oil and Packing material. They were unable to utilise the Cenvat credit taken on the above inputs as they were exporting the goods under bond. They filed for refund of unutilised cenvat credit for the period from April 07 to September 07 under the provisions of Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-CE (NT) dated 14.03.2006 on 31.03.2007.

- Department issued show cause notice for rejecting the refund claim of unutilised cenvat credit filed by the Noticee.

- The Adjudicating Authority rejected the refund claim on the ground that all excisable goods produced or manufactured in EOU is exempted from whole of excise duty leviable thereon by virtue of Notification No. 24/2003-CE dated 31.03.2003 and therefore, cenvat credit was not admissible to them.

- Aggrieved by this order, Noticee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) allowed the appeal of the Noticee by holding that the claim of the Noticee of refund under Rule 5 of the Cenvat Credit Rules, 2004 was within the statutory provisions and hence admissible to them.

- Consequently, the Noticee filed the present refund claim.

- However, the Department issued another show cause notice by observing that from the scrutiny of the refund claim it appeared that Noticee have filed the claim of unutilised cenvat credit as available to them on 31.03.2007 for the period from April 07 to September 07 and the Noticee was very much in the position to utilize the cenvat credit lying unutilised with them as the balance of the claimed amount for the disputed period was to be maintained for the said period.

Noticee’s Contentions:

The Noticee submitted the following contentions in response to the impugned show cause notice issued: -

¨ It was contended that their refund claim was being rejected on the ground that the condition of para 4 of the Notification No. 05/2006-CE was not fulfilled by them. In this regard it was submitted that the notification also says that if any manufacturer is not able to utilise the input credit available under Rule 3 of the Cenvat Credit Rules, 2004 against the goods exported then the manufacturer will be allowed the refund of such accumulated credit for that period. Accordingly, it was submitted that the amount of cenvat credit which could be utilised by them for that period had already been utilised. The noticee submits that the department cannot argue that they would be able to utilize this credit but did not do the same. There cannot be any condition imposed by the department as they were exporting their total finished goods out of India. Only waste arisen during manufacturing process has been cleared by them after payment of duty.

¨ Reliance was placed on the following cases wherein it was clearly stated that the Noticee-assessee were eligible for the refund of that amount of Credit which remain unutilized in that period.

· Idol Textiles Ltd. Versus Commissioner of C.EX., Thane-I [2007 (217) E.L.T 299 (Tri. Mumbai)]

· Super Spinning Mills Ltd Versus Commissioner of C. Ex., Coimbatore [2009 (247) E.L.T 805 (Tri. Chennai)]

· Om Prakash Jayaprakash & Co. Versus Commissioner of C. Ex., Surat [2004 (178) E.L.T 429 (Tri. Del)]

· Chandra Cotton Fabrics Versus Commr. of C. Ex., Coimbatore [2008 (226) E.L.T 731 (Tri. Chennai)]

· C.C.E. Madras Versus Indian Steel Rolling Mills Ltd [1996 (86) E.L.T 114 (Tribunal)]

¨ It was contended that the Noticee were not in a position to utilize the accumulated credit balance as contended by the Department. If they would have been in the position to utilize the available credit balance available with them, they would have surely utilized it because there really is no difference if they utilize the Cenvat credit accumulated with them for disposing their duty liability or ask for refund of the balance of the accumulated Cenvat credit on the inputs used in the export, the final result would be the same for them. The Noticee further submits that the remaining balance of Cenvat credit could be utilized only if there was any duty liability on them. They were just having duty liability on the dust (Scrap of Guar gum) to be paid by them and for discharging this liability they had utilized the Cenvat credit accumulated with them.

¨ It was further contended that there was no provision relating that the same balance should be there for the whole period as alleged by the Department. Further, the balance could not remain same because the amount of Cenvat credit will go on increasing and was remaining unutilized. The balance was increasing from April to May because it was obvious that they were exporting the goods under bond and taking the credit on input or input services used in manufacturing of that export products. Hence, the balance was increasing and remaining unutilized. As such, they had to claim refund of the same balance.

¨ It was contended that if there would be a situation that the same balance of Cenvat credit that has to be maintained throughout the period for which refund has to be claimed, then refund, only on the opening balance for the month of April could be filed. There was no need to give details of this period export and taking of Cenvat credit. Whereas, the refund was to be granted on that Cenvat credit which is taken during this period and remained unutilized. Even the earlier refund claim was granted to them following the same analogy. The refund of opening balance was not allowed to them but the credit earned during that period which had remained unutilized had been granted to them.

¨ It was contended that they had filed the consequential refund. Show cause notice dated 26.6.2008 for their earlier refund was issued by the department and it was decided against them. They had filed the appeal against the same and it was allowed by the Commissioner (Appeal). The department had not gone in appeal against the aforesaid order in appeal. And now the Department was putting forth a separate issue for the same amount and for that second Show Cause Notice has also issued. If this practice of issuance of second show cause notice is allowed then the there will be no end of litigations between Assessee and the Department. If they win the second show cause notice also then the department may issue third show cause notice and it will convert into never ending process. The issue of second show cause notice for the same amount and for same period is also not permissible in law.

¨ Noticee relied upon the following cases in support of their contention that where once a decision has been passed by the Commissioner, the second show cause notice was totally erroneous in law:

· Bhagawati Electrical Enterprises Verses Commr. of Cus, Hyderabad [2005 (189) E.L.T 467 (Tri. Bang)]

· Union of India Verses Food Specialties Ltd [1998 (97) E.L.T 402 (SC)]

· Sulochana Amma Verses Narayanan Nair [1995 (77) E.L.T 785 (SC)]

· Texomash Export Verses Commissioner of Customs, New Delhi [2005 (186) E.L.T 188 (Tri. Del)]

· Collector of Central Excise, Bangalore Verses A.V.R.A. & Co Bangalore [1987 (31) E.L.T 238 (Tribunal)]

· Commissioner of Central Excise, Indore Verses Siddharth Tubes Ltd [2004 (120) E.L.T. 331 (Tri. Del.)]

· Paro Food Products Verses Commissioner of Central Excise, Hyderabad [2005 (184) E.L.T 50 (Tri. Bang.)]

· Rammapati Export Verses Commissioner of Customs (Port), Kolkata [2006 (203) E.L.T 107 (Tri. Kolkata)]

· Fabworth (I) Limited Verses Commissioner of C. Ex., & Cus, Nagpur [2007 (213) E.L.T. 136 (Tri. Kolkata)]

Decision of the Deputy Commissioner:

The Deputy Commissioner held as under:

Ø It was held that the present claim had been filed in consequence to the order passed in the appeal of the Noticee filed against the order-in-original which has already been decided in Noticee’s favour. It was noted that no appeal against the order-in-appeal dated 20.02.2009 was been filed by the Department. It was also noted that in the said order-in-appeal it was held that the Noticee was entitled to avail the Cenvat credit and also that they were rightly entitled to claim the refund of unutilized Cenvat credit.

Ø It was held that the Noticee were not in a position to utilize the Cenvat credit of the duty taken on the inputs i.e. Furnace Oil and packing material as there was very less domestic sale. Accordingly they had filed the refund of unutilized credit under the provisions of Rule 5 of Cenvat Credit Rules, 2004. It was noted that due to clearance of dutiable goods under Bond, they could not utilize the Cenvat credit taken on the inputs, resulting in the accumulated balance.

Ø It was further held that from evidence on record it was clear that unutilized credit had been earned by the Noticee in respect of input used in the manufacture of final product which was cleared under Bond and the Noticee was not in a position to utilize the input credit allowed under Rule 3 of the said rules. It was also noted that the Noticee had not availed drawback under Customs and Central Excise duties drawback Rule, 1995 or claimed rebate of duty under Central Excise Rules, 2002 in respect of such duty.

Ø As regards those allegations in the Show Cause Notice, the Deputy Commissioner found that the Noticee had availed whatever opportunity available with them to utilize the accumulated Cenvat credit and they were not in a position to utilize it further during the said period. As such they fulfilled the condition prescribed under the Notification No. 5/2006-CE (NT) dated 14.03.2006 for entitlement of refund of the unutilized Cenvat credit. It was held that the requirement of maintenance of a minimum balance had not been mentioned in the said Notification as such.

Ø Thus, it was held that the impugned show cause notice was not sustainable.

Order of the Deputy Commissioner:

Refund claim filed by the Noticee was sanctioned. Impugned show cause notice set aside.

Conclusion:

The Deputy Commissioner rightly sanctioned the claim as the issue was already settled by the Higher Authority in appeal and the Noticee had accordingly, filed a consequential claim of refund. The issue which was once decided and was not appealed against could not be again agitated again by issuing a second show cause notice otherwise the litigation will never come to an end.

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PJ/CASE STUDY/2010-11/22
20 September 2010

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PJ/CASE STUDY/2010-11/22
20 September 2010