Whether rebate of duty paid on export goods is allowed when assessee has claimed the duty drawback in respect of inputs used in manufacture of such export goods?

CASE STUDY

Prepared by:-CA Manish Vyas

Introduction
The petitioner “M/s Iscon Surgicals Ltd. is a manufacturer and exporter of Ophthalrnic product. Assessee has exported the goods on payment of duty and also not claimed the Cenvat Credit on inputs used in manufacture of export of goods.
Assessee has availed duty drawback in respect of raw material used in manufacture of export goods. Further assessee has filed a rebate claim under Rule 18 of the Central Excise Rules, 2012 in respect of duty paid on final product exported.
The rebate claim filed by the assessee was rejected on the ground that since the assessee has availed the drawback benefit, the rebate claim was not admissible. Further the appeal and revision petition filed assessee was also rejected. Thereafter assessee has filed a writ petition before High Court and the order of High Court is the subject matter of present case study:

M/s Iscon Surgicals Ltd. vs Union of India
[Final Order Dated 10.02.2016 related to Civil Writ Petition No. 8768/2013]

Relevant Legal Provisions:-

Rule 18 of Central Excise Rules, 2002
“Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification………..”
Rule 12(1)(a)(ii) of the Drawback Rules
“(ii) in respect of duties of Customs and Central Excise paid on the containers, packing materials and materials used in the manufacture of the export goods on which drawback is being claimed, no separate claim for rebate of duty under the Central Excise Rules, 2002 has been or will be made to the Central Excise authorities;”.
Condition No. 7(e) and (f) of Notification No. 68/2007-CUS(NT)
“(7)       The rates of drawback specified in the said Schedule shall not be applicable to export of a commodity or product if such commodity or product is-
(a)…………………..
(b)…………………..
(c)…………………..
(d)…………………….
(e) manufactured or exported by availing the rebate of duty paid on materials used in the manufacture or processing of such commodity or product in terms of rule 18 of the Central Excise Rules, 2002;
(f) manufactured or exported in terms of sub-rule (2) of rule 19 of the Central Excise Rules, 2002;”

Condition No. 12(ii) of Notification No. 68/2007-Cus(NT)
“(12)     The expression "when Cenvat facility has not been availed", used in the said Schedule, shall mean that the exporter shall satisfy the following conditions,    namely:-

(i)The exporter shall declare, and if necessary, establish to the satisfaction of the Assistant Commissioner of Customs or Assistant Commissioner of Central Excise or Deputy Commissioner of Customs or Deputy Commissioner of Central Excise, as the case may be, that no Cenvat facility has been availed for any of the inputs used in the manufacture of the export product;

  (ii)if the goods are exported under bond or claim for rebate of duty of central excise, a certificate from the Superintendent of Customs or Superintendent of Central Excise in-charge of the factory of production, to the effect that no Cenvat facility has been availed for the goods under export, is produced”

Brief Facts:
M/s ISCON SURGICALS are engaged in the manufacture and export of disposable surgical products falling under Chapter 90 of the Central Excise Tariff Act, 1985. They have availed the benefit of duty drawback, which is available to set off the duties paid on raw material used in the final products so exported under the provisions of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.
Petitioner has filed 34 rebate claims under Rule 18 of the Central Excise Rules 2002 in respect of duty paid on export goods. Department issued Show cause notices to the appellant wherein it was alleged that the rebate claim filed by them are liable to be rejected on the grounds that they have availed the duty drawback for customs duty portion as well as of Central Excise duty portion under Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.
It is undisputed fact that the Petitioner did not avail any benefit of Cenvat credit on inputs under Rule 3 if the Cenvat Credit Rules. The petitioner replied to aforesaid show cause notices stating therein that the drawback as well as the rebate claim made by the petitioner is two separate and distinct benefit available to the petitioner under different provisions of Law and at two different stages.
But the Deputy Commissioner rejected the rebate claim filed by the Petitioner mainly on the ground that drawback is not admissible, if the goods are manufactured and exported in terms of Rule 18.

The appellant aggrieved with the order in original went to the Commissioner (Appeals). But the submissions of the appellant were not accepted by learned Commissioner (Appeal) and the order in appeal was passed for rejecting the rebate claim of the appellant.

Aggrieved by the impugned order in appeal the appellant preferred revision petition before the Learned Joint Secretary, Ministry of Finance, Department of Revenue, New Delhi us 35EE of the Central Excise Act. But the revision petition is rejected on the ground that:
“The petitioner is not entitled to claim rebate of duty paid at both stages simultaneously i.e. duty paid at input stage as well as finished goods stage and since the petitioner has already availed duty drawback, the rebate of duty paid on finished exported goods cannot be held admissible. It has further observed that the applicant has paid duty on exported goods from Cenvat Credit account, therefore, he cannot claim that no Cenvat facility has been availed for goods under exports and as such he was violated condition No. 12(ii) of Notification No. 68/2007-Cus(NT) dated 16.07.2007. Since violation of said condition No. 12(ii), allowing rebate of duty paid on exported goods will definitely amount to double benefit which is not permissible under the scheme of duty drawback as well as rebate of duty.”…………………………….
Aggrieved by the order of revisional authority, the assessee filed the writ petition before High Court.

Contention of Appellant: Appellant submitted that the Respondent authorities while passing the orders impugned ought to have considered that the petitioner has not claimed any rebate of the duty paid on the raw material used in manufacture of exported goods and the petitioned has already furnished declaration that CENVAT Credit was not claimed in respect of raw material used in manufacture of the exported goods.
1.    The drawback is not claimed in respect of duty paid at the time of clearance of exported goods but it is only in respect of the duty paid on raw material used in manufacture of exported goods. The claim of rebate of the duty paid at the final stage at the time of clearance of exported goods is not prohibited in any manner and there is no justification in relying on such Notification to deny the claim of rebate. It is not the case of the respondents that the petitioner has at any time claimed CENVAT Credit under Rule 3 of the Cenvat Credit Rules in respect of the raw material used in manufacture of exported goods and therefore, the drawback was rightly granted after complete verification. If export were made without payment of duty, the petitioner would have been entitled to claim refund of the Cenvat credit under Rule 5 of the CENVAT credit rules, however since the petitioner has exported the goods on payment of duty by way of adjustment from unutilized CENVAT credit, the petitioner is entitled to rebate under Rule 18. The Rules therefore, provide for refund/rebate of duty paid on the goods exported and such claims cannot be legitimately denied.

2.    The Respondents failed to appreciate the important aspect that the Petitioner from the very inception from the stage of giving Reply to show cause notice clearly averred that the drawback as well as the rebate claim made by the Petitioner are two separate and distinct benefits available to petitioner under different provisions of Law and at two different stages. It was further clarified that the Petitioner has claimed the benefit of duty drawback on the export of said scheduled product listed under the Drawback Rules, wherein procurement of raw material was of duty paid goods and petitioner did not avail Cenvat credit benefit on the raw material used in manufacture of the exported goods. However rebate was claimed by the Petitioner under Rule 18 of the Central Excise Rules, 2002 on the final product so exported.

3.    The Rule 18 of the Central Excise Rules, 2002 provides for benefit of rebate of duty paid on excisable goods exported or duty paid on materials used in the manufacture or processing of such goods. In terms of Rule 3 of the Duty Drawback Rules, drawback may be allowed on the export of goods at such rate or at such amount as may be determined by the Central Government, provided that where Cenvat credit of the duties paid on inputs used in the manufacture of export goods, has not been taken or such duties or taxes have been refunded or rebated either in whole or in part under Central Excise Act, 1944 or Customs Act, 1962. The two provisions are altogether different from each other. As also in this case, the provisions of the rebate claim is entirely different and is only based on the finished goods exported; and on the other hand the Duty Drawback is concerned with the raw material stage which includes the duty which was paid directly or indirectly by the petitioner. The scheme of the Act and the Rules there under do not prohibit claiming of rebate in cases where drawback is allowed nor are the provisions of Rule 18 rendered inoperative in any manner.
The significant aspect has not been dealt with and examined in the impugned order and therefore the order impugned is bad at law and deserve to be quashed.

4.    The benefit of rebate is availed by the Petitioner at the stage of final products and in terms of Rule 18 of the Central Excise Act and the Notification No. 19/2004-CE(N.T.), the petitioner has fulfilled all the conditions mentioned therein as pre-requisite for the entitlement of rebate and in which there is no such condition specified that availing of benefit of duty drawback at raw material stage is a hindrance and/ or disqualification for availing the benefit.

5.    The authorities have relied upon Notification No. 68/2007-Cus(NT) to reject the rebate claim filed under Rule 18 upon a clear misconstruction of the clauses of the said Notification. The clause 7 of the Notification states that the rates of drawback shall not be applicable to export of a commodity or product if such commodity or product is manufactured or exported by availing the rebate of duty paid on material used in the manufacture or processing of such commodity or product in terms of Rule 18.

6.    The petitioner has neither flouted any of the provisions of : proviso to Rule 3 and Rule 12(a) (ii) of Drawback Rules and nor did the Petitioner have failed to fulfill the conditions prescribed under para 7(e) and (f) of Notification No. 6/2007-Cus(NT) dated 16.07.2007 nor has flouted any other provisions of law as specified herein. Therefore the order impugned, being erroneous and misconstrued in its entirety and liable to be set aside.

7.    It has been the case that Petitioner, instead of opting for present modus of availing the benefit of rebate, had opted for making export of goods without payment of duty(Export under Bond), it was not required for it to pay a single penny on the said export and furthermore, would have availed the benefit of duty drawback as have been availed presently by the Petitioner and would have been further entitled to refund under Rule 5 of the Cenvat Credit Rules. Therefore, the impugned orders upholding the orders of all the respondent authorities are illegal and deserve to be quashed.

8.    The petitioner has no alternative and efficacious remedy, but to file the writ petition and submitted that the issue involved in the petition for writ is no more res integra in view of the law laid down by Hon’ble Apex Court in M/s. Spentax Industries Ltd. Vs. Commissioner of Central Excise [Civil Appeal No. 1978/2007 decoded pm 9.10.2015]

Reasoning of Judgement: The issue involved in the instant petition for writ is no more res integra in light of the law laid down by Hon’ble Apex Court in the case of M/s. Spentax Industries Ltd.
The Hon’ble Apex Court in M/s Spentax Industries Ltd. Vs Commissioner of Central excise, after considering historical perspective of the Statutory Scheme and relying upon the following judgments:
1.    R & B Falcon (A) Pvt. Ltd. Vs. Commissioner of Income Tax [(2008) 12 SCC 466]
2.    Desh Bandhu Gupta and Co. and others Vs. Delhi Stock Exchange Association Ltd. [(1979) 3 SCR 373]
3.    Union of India Vs. Kamlabhai Harjiwandas Parekh and others [(1968) 1 SCR 463]
4.    State of Bombay Vs. R.M.D. Chamarbaugwala [(1957) 1 SCR 874]
5.    Jayalalitha Vs. Union of India [(1999) 5 SCC 138]
6.    Mazagaon Dock Ltd. Vs. The Commissioner of Income Tax and Excess Profits Tax [(1959) 1 SCR 848]
Observed as under:
1.    Rule 18 of the Excise Rules is an enabling provision, which authorises the Central Government to issue a notification for grant of rebates. Exercising powers under this Rule, the Central Government has issued necessary notifications for rebate in respect of both the duties, i.e., on Inputs/ intermediate product as well as on the final product.
2.    Notification No. 19/2004-CE(N.T.): Dealing with grant of rebate of whole of duty on excisable goods exported;
3.    Notification No. 21/2004-CE(N.T.) dated September 06, 2004 (“Notification No. 21”): Dealing with rebate of whole of the duty paid on excisable goods used in the manufacture or processing of exported goods.
4.    Normally, the words 'OR' and 'AND' are to be construed as per their literal meaning unless some other part of Statute or the clear intention of it requires that to be done. If the literal interpretation of these words gives an absurd meaning, the Court has power to construe the word 'OR' as 'AND' and vice-versa.
5.    Two alternative methods are provided under the Excise Rules, enabling an exporter of goods to get rid of the burden of paying the Excise duty, both on excisable goods as well as on materials used in the manufacture of goods, contained under Rule 18 and Rule 19 thereof. Rule 19 of the Excise Rules enable the exporter to receive the inputs to be used in manufacture of exported goods without payment of Excise duty and remove the exported goods without payment of Excise duty.
6.    The word 'OR' occurring in Rule 18 of the Excise Rules cannot be given literal interpretation as that leads to various disastrous results and, therefore, this word has to be read as ‘AND’ as that is what was intended by the rule maker in the scheme of things and to carry out the objectives of the Rule 18 of the Excise Rules and also to bring it at par with Rule 19 thereof.
7.    The relevant extract of Rule 18 of the Excise Rules is reproduced here under for ease of reference:
“Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification”
Thus, the Hon’ble Apex Court held that it cannot be the intention of the Legislature to provide rebate only on one item i.e. either on inputs or final products. It was further held that giving such restrictive meaning to Rule 18 of the Excise Rules would not only be anomalous and absurd, but, it would defeat the very purpose of grant of remission from payment of Excise duty in respect of the goods which are exported out of India.
Hence, the assessee was held to be entitled to both the rebates i.e. amount of duty paid on inputs used in the manufacturing of exported goods as well as the amount of duty paid on exported final goods, under Rule 18 of the Excise Rules.

On basis of the Hon’ble Apex Court in case of M/s Spentax Industries Ltd. Vs Commissioner of Central excise, the High court held that issue involved in the instant petition for writ is no more res integra in light of the law laid down by Hon’ble Apex Court in the case of M/s. Spentax Industries Ltd. Therefore assessee’s writ petition is allowed.

Decision: Writ Petition Allowed

Comment: The assessee had not claimed the Cenvat credit on inputs and availed the duty drawback on inputs used in manufacture exports goods. Assessee cleared the goods for export on payment of excise duty and claimed the rebate under Rule 18 in respect of duty paid on export goods. Department rejected the rebate claim on the ground that rebate is not allowed when drawback is claimed on inputs. The appeal of assessee before commissioner as well as revision petition before Joint Secretary is rejected on the ground that “The petitioner is not entitled to claim rebate of duty paid at both stages simultaneously i.e. duty paid at input stage as well as finished goods stage and since the petitioner has already availed duty drawback, the rebate of duty paid on finished exported goods cannot be held admissible”.
The assessee filed writ petition before high court and the High court allowed the writ petition in light of the law laid down by Hon’ble Apex Court in the case of M/s. Spentax Industries Ltd.
In case of M/s. Spentax Industries Ltd., the assessee was held to be entitled to both the rebates i.e. amount of duty paid on inputs used in the manufacturing of exported goods as well as the amount of duty paid on exported final goods, under Rule 18 of the Excise Rules.
The Hon’ble Supreme Court held that it cannot be the intention of the Legislature to provide rebate only on one item i.e. either on inputs or final products. It was further held that giving such restrictive meaning to Rule 18 of the Excise Rules would not only be anomalous and absurd, but, it would defeat the very purpose of grant of remission from payment of Excise duty in respect of the goods which are exported out of India.
On the basis of decision of Supreme Court, The High Court has held that the issue involved in the instant petition is no more res integra in light of the law laid down by Hon’ble Apex Court in the case of M/s. Spentax Industries Ltd. Therefore writ petition is allowed

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PJ/CASE STUDY/2015-16/111
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