PJ/Case Study/2013-14/93
 
 

Case Study

Prepared by:- CA Neetu Sukhwani &
Monika Tak

Introduction: M/s. Bhansali Engineering Polymers Ltd. (here in after referred to as "assessee" also as well as M/s. BEPL)) are engaged in the manufacture of Styrene Acrylonitrile (SAN) Co-polymers and Acrylonitrile Butadiene Styrene (ABS) falling under sub-heading No. 39 of the First Schedule to the central Excise Tariff Act, 1985. They have filed a refund claim on 14.03.2014 for Rs. 21,28,577/- under Rule 5 of the Cenvat Credit Rules, 2004 of unutilized CENVAT credit lying accumulated in the CENVAT credit account as on 31.12.2013. The refund has been filed on the ground that clearances were made to 100% EOUs during the period from October, 2013 to December, 2013 without payment of duty under CT-3 certificates. As such they are unable to utilize the Cenvat credit taken in respect of the duty paid inputs used in manufacture of finished goods which were cleared to 100% EOUs. A show cause notice was issued to them proposing to deny their refund claim on the ground that refund claim under Rule 5 is admissible only with respect to export clearances without payment of duty under bond or letter of undertaking and not with respect to clearances made to 100% EOU against CT-3 certificates. The outcome of the show cause notice is the subject matter of the present case study.

M/S. Bhansali Engineering Polymers Ltd.

[SCN NO.V (RFD)18/74/2014/1617 DATED 07.05.2014]
 

Relevant legal provisions:

Ø  Rule 5 of the Cenvat Credit Rules, 2004.
 

Ø  Notification no. 27/2012-CE (NT) dated 18.06.2012 prescribing the safeguards, conditions, limitations and procedure to be followed for claiming refund under Rule 5 of the Cenvat Credit Rules, 2004.
 

Issue involved:The issue involved before the adjudicating authority in this case was that-
Whether refund of unutilized cenvat credit admissible for clearances made to 100% EOUs? 

Brief facts:- This order is being passed in pursuance to the Show Cause Notice issued to M/s. Bhansali Engineering Polymers Ltd.(Here in after referred to as "assessee" also as well as M/s. BEPL)) engaged in the manufacture of Styrene Acrylonitrile (SAN) Co-polymers and Acrylonitrile Butadiene Styrene (ABS) falling under sub-heading No. 39  of the First Schedule to the Central Excise Tariff Act, 1985 having registration AAACB3368HXM03.
 
The refund has been filed on the ground that clearances were made to 100% EOUs during the period from October, 2013 to December, 2013 without payment of duty under CT-3 certificates. As such they are unable to utilize the Cenvat credit taken in respect of the duty paid inputs used in manufacture of finished goods which were cleared to 100% EOUs.
 
During the course of scrutiny of the documents submitted by the assessee along with refund claim, it has been observed that the assessee had cleared the finished goods to 100% EOUs against CT-3 certificates under notification no. 22/2003-CE dated 31.03.2003 without payment of duty and had not exported the same under Bond or Letter of Undertaking under Rule 19 of the Central Excise Rules, 2002.
 
It was alleged that the assessee had cleared only 104.20 MT of their finished goods to 100% EOUs without payment of duty against their total clearance of 9590.94MT. As such they had exported only 1.09%of their finished goods to the 100% EOUs without payment of duty while their balance of Cenvat credit is Rs. 9,89,12,304/- as on 31.12.2013. This clearly shows that, in the instant claim, the accumulation of Cenvat credit cannot be considered only because of their clearance made to 100% EOUs. Since, refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules,2004 is allowable in the case, where the assessee is unable to utilize their Cenvat credit due to export of goods under bond or letter of undertaking without payment of Central Excise duty, the same is not admissible to them. In the present case of assessee, it appeared that the Cenvat credit is accumulated due to import of their inputs on payment of duty including 4% Additional duty of Customs, as their maximum inputs are imported. It was alleged that as the refund of Cenvat credit, under Rule 5 of the Cenvat Credit Rules, 2004 does not consider such accumulation of Cenvat credit, their refund claim is liable to be rejected.
 
It was also alleged that under Notification No. 27/2012-CE(NT) dated 8.06.2012, it has also been clearly prescribed that “at the time of sanctioning the refund claim the Assistant Commissioner or Deputy Commissioner shall satisfy himself or herself in respect of the correctness of the claim and the fact that goods cleared for export or services provided have actually been exported”. While in the instant case the goods have actually been cleared to 100% EOUs under Notification no. 22/2003-CE dated 31.03.2003 under CT-3 procedure and not exported under bond and LUT as prescribed under Central Excise i.e. under Rule 19 of the Central Excise Rules, 2002. Moreover, it can also not be ascertained that the same goods which has been cleared by the assessee to the 100% EOUs had ultimately been exported by the Said EOU or not.
 
From the above it is clear that assessee did not export the goods as prescribed under Central Excise without payment of duty under bond or LUT under Rule 19 of Central Excise Rules, 2002 and it is also not ascertainable that the goods cleared to 100% EOUs was ultimately exported by the 100% EOUs. Further, it was also observed that assessee has cleared goods to 100% EOUs only 1.09% of their total clearance and their main input is imported on payment of duty including 4% AED. The assessee has taken credit of 4% AED of Rs. 7,85,49,920/- during 2012-13 and Rs. 9,58,07,250/- during 13-14 up to Feb, 2014. Therefore their main reason for accumulation of Cenvat credit is not due the clearances made to 100% EOUs while Rule 5 of the Cenvat Credit Rules, 2004 cover refund of accumulated Cenvat credit only if the assessee is not in a position to utilize his Cenvat credit because of export and not for any other reason.
 
In view of above, the claim filed by the assessee was found inadmissible and not considerable as per the provisions of Rule 5 of the Cenvat Credit Rules, 2004 read with notification no. 27/2012-CE(NT) dated 18.06.2012 and therefore M/s Bhansali Engineering Polymers Ltd., Abu Road was called upon to show cause and explain as to why refund of accumulated Cenvat credit amounting to Rs. 21,28,577/- should not be rejected.
 
Assessee Contentions:-The assessee made following submissions before the adjudicating authority:-
 
 
1)            They submit that they are manufacturer of SAN and ABS falling under Chapter 39 of the First schedule to the Central Excise Tariff Act, 1985. They are holder of Central Excise Registration no. AAACB3368HXM003. They submit that the show cause notice issued to them proposing to reject the refund claim filed by them under Rule 5 is wholly and totally erroneous and is liable to be set aside.
 
2)            They submit that it has been alleged that Rule 5 of the Cenvat Credit Rules, 2004 allows refund of any input or input service used in the manufacture of final product which is cleared for export under bond or letter of undertaking. However, during the course of scrutiny of the documents submitted by them along with refund claim, it has been observed that they have cleared the finished goods to 100% EOUs against CT-3 certificates under Notification no. 22/2003-CE dated 31.03.2003 rather than under bond or letter of undertaking, therefore, it is alleged that since condition of rule 5 is not satisfied, the refund of unutilized credit under rule 5 is not admissible to them. In this respect, they submit that the contention is totally vague because the notification no. 27/2012 –CE (N.T.) dated 18.06.2012 read with Rule 5 of the Cenvat Credit Rules, 2004 prescribes a mechanism whereby the refund of cenvat credit availed with respect to inputs used in exported goods is being allowed. Also, the impugned show cause notice has been issued on the basis of incomplete reading and misinterpretation of rule 5. In this connection, they are producing the language of rule 5 as follows:-
 
“Rule 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 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.”  
 
The analysis of emphasized portion of the rule 5 makes it ample clear that the refund is allowed in two cases, where the export is made under bond or Letter of undertaking or it is cleared as an intermediate product used in manufacture of export goods. It is worth mentioning here that the refund is also allowed on an intermediate product cleared for export. Such types of clearances are normally affected against Annexure-1 which is supplied by the ultimate exporter who uses that intermediate product for the purpose of manufacturing the export goods. In such cases, the responsibility to prove that the goods are ultimately utilized for the purpose of export lies on the ultimate exporter who has executed the bond and has supplied the Annexure-1 to the supplier. Similar is the case with 100% EOU who gets the CT-3 issued and provides the same to the supplier of goods. Duty free clearance is affected against CT-3. Since CT-3 is also issued by debiting the requisite amount from the bond executed by the 100% EOU, such clearances are also to be treated at par with the export under bond, keeping the government’s intention to allow the refund even on the intermediate products used in the export goods.
 
3)            In continuation to above, it is submitted that the interpretation of statute depends on the intention with which it has been framed. The rule 5 has been introduced with an intention to allow the refund of Cenvat credit attributable to the raw material and input services used for manufacture of export goods or in manufacture of intermediate goods used that are further used for manufacture of export goods. If the contention of the impugned show cause notice is accepted for the sake of argument also, then it will defeat the very basic purpose of introducing the provisions of rule 5 of Cenvat Credit Rules, 2004 as clearance against CT-3 satisfies all the conditions for allowing the refund claim. The goods cleared against CT-3 are ultimately exported, so the inputs and input services used in it are liable for refund as per intention of the government. But the impugned show cause notice denying the same is not viable in view of intention of legislation. It has been held in a number of judicial pronouncements that the interpretation that defeats the intention of statute is not sustainable. Reliance is placed on the following judgments:-
 
·         BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-
Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]
·         COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]
Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]
In view of above cited judgments, the impugned show cause notice issued on the basis of interpretation which defeats the legislative intent deserves to be quashed.
 
 
4)            Aligning with the above, they also submit that there have been a number of decisions wherein it has been held that refund under Rule 5 as regards accumulated credit is also admissible with respect to clearances made to 100% EOU because, clearances to 100% EOU are equivalent to exports and are considered as “deemed exports”. The reliance is being placed on the following decisions in support of their contention that refund under Rule 5 is admissible with respect to clearances made to 100% EOU:-
·         COMMISSIONER OF C. EX., SURAT VERSUS SHILPA COPPER WIRE INDUSTRIES [2008 (226) E.L.T. 228 (Tri. - Ahmd.)]wherein it has been held as follows:-
Cenvat/Modvat - Refund of unutilized credit - Export Oriented Unit, 100% EOU - Inputs used in manufacture of final products which were cleared to another 100% EOU as deemed export - In as much as final products were cleared to another 100% EOU as deemed export, same has to be treated as export and refund of unutilized credit has to be made to assessee - Rule 5 of Cenvat Credit Rules, 2004. [para 5]
The above cited decision has been affirmed by Gujarat High Court in the citation as 2011 (269) E.L.T. 17 (Guj.) wherein it has been concluded as below:-
Refund of unutilised Cenvat credit - Deemed exports- Clearances by 100% EOU to another EOU - Revenue’s case that refund admissible only on physical exports and reliance on Board’s Circular No. 220/54/96-CX., dated 4-6-1996 not sustainable - Apex Court in number of decision upholding Tribunal’s view that Revenue not to dispute that for fixing DTA sales limits only physical exports and not deemed exports be considered, when DC given permission for DTA sale upto specified value - Tribunal in impugned order also placed reliance on said judgments - Appeal against Tribunal in Amitex Silk Mills Pvt. Ltd. [2006 (194)E.L.T. 344 (Tribunal)], which also held same, pending before Apex Court - Issue settled and no purpose served by awaiting its outcome - Clearance to 100% EOU be treated as physical exports for entitling refund of unutilised Cenvat credit - Tribunal order allowed refund, upheld - Rule 5 of Cenvat Credit Rules, 2004. [paras 14, 15, 16]
·         NBM INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, RAJKOT [2009 (246) E.L.T. 252 (Tri. - Ahmd.)]wherein it has been held as follows:-
Refund of - Cenvat credit - Inputs used in finished goods supplied to 100% EOU - Denial of credit on the ground that deemed exports are not real exports - Rule 5 of Cenvat Credit Rules, 2004 provides refund also on goods which are used in intermediate product cleared for export - 100% EOUs eligible for Cenvat credit and when they pay duty in respect of DTA sales, credit is admissible to recipients - Refund of Cenvat credit to be allowed - Appeal allowed - Rule 5 ibid. [para 3]
The above cited decision was affirmed by Gujarat High Court having citation as [2012 (276) E.L.T. 9 (Guj.)]= [2013 (29) STR 208] wherein it was concluded that :-
Refund - Cenvat credit - On inputs used in manufacture of goods cleared by DTA units to 100% E.O.U. - HELD : Refund was available - It could not be denied on ground that it was case of deemed export, and refund could be granted only in case of physical export - Rule 5 of Cenvat Credit Rules, 2004. [paras 3, 4]
Precedent - Coordinate Bench Decision of another High Court - It is not binding where contrary decision of applying High Court directly on issue, was available - It is more so as Apex Court decision, though not in identical situation, was also available. [para 4]
Moreover, the authorised representative pleaded a similar case for M/s Rangdhara Polymers wherein also the issue as regards admissibility of refund claim under Rule 5 with respect to clearances made to 100% EOU was considered. In the said case, the Ahmedabad Tribunal ruled that claim for refund of accumulated credit on inputs used in the manufacture of excisable goods cleared to 100% EOU is admissible. The said decision is produced for the sake of convenient reference as follows:-
·         COMMISSIONER OF C. EX., AHMEDABAD VERSUS RANGDHARA POLYMERS [2011 (264) E.L.T. 275 (Tri. - Ahmd.)]wherein it was held as follows:-
Refund - Cenvat/Modvat -Deemed exports - Accumulated credit - Claim for refund of accumulated credit on inputs used in manufacture of excisable goods cleared to 100% EOU admissible - Rule 5 of Cenvat Credit Rules, 2004. [para 2]
Refund - Limitation - Cenvat/Modvat - Deemed exports - Accumulated credit - In the absence of specific provisions related to refund of accumulated credit in Section 11B of Central Excise Act, 1944, time limit stipulated under Section 11B ibid not applicable in case of refund claim for accumulated credit under Rule 5 of Cenvat Credit Rules, 2004. [para 3]
It is also worth mentioning that the revenue appeal against this order has also been rejected by the High Court in Tax Appeal No. 1732 of 2010 dated 23.07.2012 and so the order passed by the Tribunal has attained finality. The decision of the Gujarat High Court rejecting the appeal filed by the revenue department is being reported as Commissioner of Central Excise & Customs, Ahmedabad-II Vs Rangdhara Polymers [2012-TIOL-1076-HC-AHM-CX]. Moreover, this decision has not been further appealed by the revenue in the Supreme Court and has attained finality. Therefore, the issue as regards admissibility of refund under Rule 5 with respect to clearances made to 100% EOU treated as deemed exports is no longer res integra and the same is admissible without any doubt. As such, the impugned show cause notice that has been issued to revive the issues already settled by High Courts and have attained finality is totally baseless and deserves to be quashed in the light of the above cited decisions.
5)            Alongwith above cited decisions, they also wish to place reliance on the following judgements that have been delivered by various Tribunals:-
·         REFRON VALVES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, VADODARA [2012 (281) E.L.T. 447 (Tri. - Ahmd.)]wherein it has been held as follows:-
 
Refund - Cenvat credit - Deemed export - Accumulated credit - Goods cleared from one 100% EOU to another 100% EOU - Such clearance to be treated as physical export and not deemed export for purpose of granting refund of unutilized Cenvat credit - Appeal allowed- Rule 5 of Cenvat Credit Rules, 2004. [2011 (269)E.L.T. 17 (Guj.) followed]. [paras 1, 2]
 
·         MANOJ HANDLOOMS VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI [2009 (240) E.L.T. 158 (Tri. – Chennai)]:-
 
Refund of accumulated input credit - Clearances to an EOU to be treated as export and refund of unutilized credit allowed to the assessee- Refund claim rejected on only ground that appellants had not established its entitlement for amount claimed with particulars of export under bond or under letter of undertaking of final products - Documents evidencing clearances of final products to EOU to be accepted as proof of export envisaged in clause (6) of Appendix to Notification No. 11/02-C.E. (N.T.) - Rule 5 of Cenvat Credit Rules, 2004. [para 4]
·         COMMR. OF C. EX., CHANDIGARH VERSUS HIMACHAL WIRE INDUSTRIES (P) LTD. [2005 (185) E.L.T. 303 (Tri. - Del.)]:-
 
Refund - Cash refund - Deemed export- Supplies to World Bank Aided Projects treated as deemed export, thus no excise duty required to be paid - Revenue’s contention that refund to be allowed in Cenvat credit account and not in cash, not acceptable in view of Board’s Circular No. 220/54/96-CX, dated 4-6-1996 - Section 11B of Central Excise Act, 1944. [para 3]
Strictures against Commissioner - Commissioners filing appeals contrary to Board’s Circular - Higher authorities in Department should take necessary steps to suppress such self defeating appeals. [para 2]
·         ELCOMPONICS SALES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NOIDA [2012 (279) E.L.T. 280 (Tri. - Del.)]:-
 
Refund claim - Cenvat - Export Oriented Unit, 100% EOU- Finished goods manufactured out of Cenvat credit availed inputs supplied to 100% EOUs, refund of accumulated Cenvat credit cannot be denied on the ground that supplies made to 100% EOUs are not real exports but deemed exports. [para 5]
Refund claim - Limitation - Time limit stipulated under Section 11B of Central Excise Act, 1944 is not applicable in case of refund claim made under Rule 5 of Cenvat Credit Rules, 2004. [para 6]
Refund claim - Cash refund - Provisions of Exim Policy cannot be read into provisions of Cenvat Credit Rules, 2004 as Rule 5 ibid provides for cash refund of accumulated credit in respect of final products cleared for export - Impugned order set aside - Appeals allowed - Rule 5 ibid. [paras 7, 8] 
 
In light of the above cited decisions, the contention of the impugned show cause notice that refund under Rule 5 is not admissible with respect to clearances made to 100% EOU as the same are deemed exports is not tenable and is liable to be quashed at the outset. Therefore, the refund claim filed by them under Rule 5 should be granted to them at the earliest possible without any further delay.
 
6)            They further also wish to place reliance on the latest judgment given by the Hon’ble High Court of Gujarat in the case of E I DUPONT INDIA PRIVATE LIMITED VS UOI [2013-TIOL-1172-HC-AHM-CX] wherein it has been held as follows:-
           
Central Excise - Refund - Goods cleared to EOU - Refund of CENVAT Credit- In the case of Commissioner of Central Excise and Customs vs. NBM Industries reported in 2013 (29) STR (208) Gujarat = 2011-TIOL-677-HC- AHM -CX , it has been held that on inputs used in manufacturing of goods cleared by DTA units to 100% EOU refund of CENVAT credit is available and it could not be denied on the ground that it was the case of deemed export and refund would be granted only in case of physical export.
Judicial Discipline - Binding nature of High Court orders on Assistant Commissioner. by not following the binding decision of this Court in the case of NBM Industries (Supra), the respondent No.4 - adjudicating authority has rendered herself liable for the prosecution/proceedings under the Contempt of Courts Act. It was not open for the adjudicating authority - not to follow the binding decision of this Court in the case of NBM Industries solely on the ground that the said decision is in the case of another assessee and the claimant cannot rely upon the said decision. It is also required to be noted that despite the binding decision of the jurisdictional court in the case of NBM Industries, adjudicating authority has relied upon the decision of the Madras High Court in the case of BAPL Industries Ltd., which was as such considered by this Court while passing the order in the case of NBM Industries. The observation made by the adjudicating authority that the decision of this Court in the case of NBM Industries (Supra) is not a ruling as it is in the case of another assessee, is strongly disapproved. The decision of this court in the case of NBM Industries (Supra) though may be in the case of another assessee is binding to respondent.
Judicial indiscipline - Contempt Proceedings dropped as the officer is a new entrant in the Department : To maintain the rule of law and judicial discipline, the lower authority is bound by the decision of the higher appellate authorities/courts. However, considering the fact that there is no other malafide alleged and that the respondent No.4 is reported to be recently joined the department in the year 2011 and the unconditional apology tendered, the proceedings under the Contempt of Courts Act closed.

Judicial Indiscipline - Strictures : such arbitrary act on the part of the lower adjudicating authority and/or lower authorities in ignoring the binding decisions/orders passed by the higher appellate authorities/courts, strongly disapproved. It appears that still the message has not reached the concerned authorities in following the binding decisions of the higher appellate authorities and/or courts solely on the ground that the same is in the case of another assessee . Such a conduct is also required to be viewed from another angle. This would not only amount to disregarding the direction of the court rendered in earlier petitions but would also lead to multiplicity of proceedings. When the courts are overburdened and are accused of arrears, it is the duty of the concerned authorities to avoid multiplicity of proceedings and lessen the burden of the courts. Being a part of the justice delivery system, all efforts should be made by the authorities/quasi judicial authorities and judicial authorities to see that there is no multiplicity of proceedings and to pass the orders considering the binding decisions. It would also avoid unnecessary harassment to the parties as well as the unnecessary expenditure.
Judicial Discipline - binding nature of order of superior courts - CBEC directed to issue circular - As observed hereinabove despite clear and unequivocal message by the pronouncement of the decisions by the Hon'ble Supreme Court as well as this Court, the message has not reached to the concerned authorities, Central Board Excise and Customs, New Delhi is directed to issue a detailed circular to all the adjudicating authorities considering the observations made by this Court in the present judgment and order as well as the law laid down by the Hon'ble Supreme Court in various decisions referred to in the present judgment and order, within a period of 30 days from the date of receipt of the present order so that such eventuality may not happen again and again.
As observed hereinabove despite clear and unequivocal message by the pronouncement of the decisions by the Hon'ble Supreme Court as well as this Court, the message has not reached to the concerned authorities, we direct respondent No.2 - Central Board Excise and Customs, New Delhi to issue a detailed circular to all the adjudicating authorities considering the observations made by this Court in the present judgment and order as well as the law laid down by the Hon'ble Supreme Court in various decisions referred to in the present judgment and order, within a period of 30 days from the date of receipt of the present order so that such eventuality may not happen again and again - Petition Allowed with costs : GUJARAT HIGH COURT

In light of the above cited judgement of the Gujarat High Court, it is very much clear that in view of the judicial principle, the ratio laid down by the High Courts and Supreme Court are to be unconditionally followed by the lower authorities. When the High Court has confirmed the issue as regards admissibility of refund under Rule 5 in respect of clearances made by DTA unit to 100% EOU, the same issue should not be invoked with respect to different assessees repetitively. As such, the benefit of the above cited decision should be extended to them also and the impugned show cause notice proposing to deny our refund claim filed under Rule 5 on the ground that they pertain to deemed exports made to 100% EOU should be dropped.

7)            They further wish to place reliance on the Board’s Circular no. 220/54/96-CX dated 4.6.1996 wherein it has been clarified that the cash refund of unutilized modvat credit is an incentive given to manufacturers and exporters and non-grant of such claim will affect the competitiveness of the Indian Industry in the international market. The clarification issued by the above cited circular clearly indicates the intention of the government that the cash refund of unutilized credit is being given to boost the exports but on the contrary, the refund claims filed by the assessees are being withheld for reasons and issues already settled and resolved by High Courts and Supreme Court. They submit that when clearance is made to 100% EOU, it is treated as “deemed export” and is at par with the physical export. Moreover, in the notification no. 27/2012-CE (N.T.) dated 18.06.2012, no distinction has been made as regards physical exports and deemed exports. It has also not been stated anywhere neither in Rule 5 nor in the notification no. 27/2012-CE (N.T.) dated 18.06.2012 that refund of accumulated credit is only admissible with respect to physical exports and the said benefit is not applicable for deemed exports. Furthermore, the decisions pronounced also support the contention that the refund of accumulated credit under Rule 5 is also available with respect to deemed exports. As such, the refund claim filed by them should be processed fast in light of the above cited board circular and the impugned show cause notice proposing to deny their refund claim on flimsy grounds should be set aside.

8)            Aligning with the above, they submit that the circulars issued by the Board are binding on the departmental officers and they are bound to follow the circulars. This view is supported by the decision given by the Supreme Court in the case of Collector of Central Excise, Vadodara vs Dhiren Chemical Industries [2002 (139) ELT 3 (SC)]. In this decision, hon’ble Supreme Court has held that the order passed by the Revenue in contravention to the clarifications given by the Board is void ab initio. In this case it was held as follows:-
 
“Departmental clarification - C.B.E. & C. Circulars binding on Revenue even if placing different interpretation then Supreme Court - Regardless of the interpretation that the Court have placed on the phrase “on which the appropriate amount of duty has already been paid”, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue - Section 37B of Central Excise Act, 1944.”
                 
The analysis of this decision makes it clear that while deciding any case, the Board Circulars are to be kept in mind. Since the impugned show cause notice proposes to reject the refund claim filed by them in contradiction to the above stated Circular, it should be set aside and the refund claim filed by them under Rule 5 should be allowed to them.
 
9)            It has been further alleged in the impugned show cause notice that the refund of cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 is allowed only if the assessee is otherwise unable to utilize their cenvat credit. In the instant case, during the relevant period, it has been alleged that they have cleared only 104.20 MT of their finished goods to 100% EOUs without payment of duty against their total clearance of 9590.94 MT. As such, they have exported only 1.09% of their finished goods to the 100% EOU without payment of duty while their cenvat credit is Rs. 9,89,12,304/- as on 31.12.2013. This clearly shows that, in the instant claim, the accumulation of cenvat credit cannot be considered only because of their clearances made to 100% EOUs. Since refund of accumulated cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 is allowable in the case where assessee is unable to utilise their cenvat credit due to export of goods under bond or letter of undertaking without payment of central excise duty. In the present case, it appeared that the cenvat credit is accumulated due to import of inputs on payment of duty including 4% Additional Duty of Customs as their maximum inputs are imported. Accordingly, it has been alleged that as the refund of cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 do not consider such accumulation of the cenvat credit, the refund claim filed by them is liable to be rejected. In this regard, they submit that it is wrong to contend that since only a small percentage of our sales pertain to 100% EOU, they are incapable to file refund under Rule 5 of the Cenvat Credit Rules, 2004. They submit that the refund claim that has been filed by them is under notification no. 27/2012-CE (NT) dated 18.06.2012 that nowhere prescribes that “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 against the goods exported during the quarter or the month to which the claim pertains.” As such, the contention that the refund of credit under Rule 5 is allowed only if the assessee is unable to otherwise utilize the cenvat credit is not tenable at the outset. They submit that the above condition was specifically mentioned in para 4 of the erstwhile notification no. 05/2006-CE (N.T.) dated 14.03.2006 whereas there is no such condition in the superseded notification no. 27/2012-CE (NT) dated 18.06.2012. Aligning with the above, it is also worth mentioning here that the earlier Rule 5 of the Cenvat Credit Rules, 2004 also specifically mentioned that refund under Rule 5 is admissible only if adjustment or set off of the input credit is not possible when goods are exported. To better appreciate the erstwhile provision as contained in Rule 5, they reproduce the said Rule for the sake of convenient reference as follows:-
 
“Rule 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,
 
(iii)          duty of excise on any final product cleared for home consumption or for export on payment of duty; or
(iv)          service tax on output service,
 
and where for any reason such adjustment is not possible, the manufacturer or 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.”  
 
However, if the present Rule 5, last substituted vide Notification no. 18/2012-CE (N.T.) dated 17.03.2012 is perused, it is observed that the said Rule nowhere prescribes that the refund under Rule 5 is admissible only if adjustment or set off of the cenvat credit on inputs is not possible. The amended Rule 5 as prevalent in the instant case is produced for the sake of convenient reference as follows:-
 
“Rule 5 Refund of Cenvat Credit.- (1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of cenvat credit as determined by the following formula subject to procedure, safeguards, conditions, and limitations, as may be specified by the Board by notification in the Official Gazette :
 
Refund amount = Export turnover of goods and services/Total Turnover * Net Cenvat Credit.”
 
On comparing the above Rule 5, before 1.4.2012 and after the amendment, it is crystal clear that the requirement of incapability to utilize/adjust the input credit has been done away with in the present scenario. As such, the contention that the refund is not admissible to them as they were capable of adjusting or setting off the input credit is totally erroneous in the present scenario. Moreover, the present Rule 5 provides proportionate refund of the cenvat credit that is only attributable to the export of goods or services. This was also prescribed in the erstwhile notification no. 5/2006 governing the provisions of refund claim under Rule 5 pertaining to unutilized credit. This by itself is indicator of the fact that the refund of credit is being proportionately taken of the unutilized credit attributable to the export of goods/services. As such, the refund of unutilized credit that has accumulated on account of export of goods/services should not be rejected on flimsy grounds.
 
 
10)         As regards the allegation of accumulation of credit on account of import of basic raw material is concerned and the contention that Rule 5 does not consider such accumulation of the credit is concerned, they submit that it is neither specified in Rule 5 nor in the notification prescribing procedure, conditions and limitations for filing refund claim under Rule 5 that the refund would not be admissible if the credit accumulation is on account of import of raw materials. They submit that credit accumulation may be due to various reasons and even if the credit accumulates due to the fact that they have imported raw material, it does not come in their way to claim the benefit of refund under Rule 5. They submit that there is no one to one correlation either for availing credit or for availing refund. They submit that the refund of credit accumulated is admissible as far as the credit is rightly availed and the credit is pertaining to inputs/input services used with respect to exported goods. As already stated above, the proportionate credit pertaining to export of goods and services is only admissible under Rule 5, the reason of accumulation of credit does not matter. Accordingly, the contention that accumulation of 4% SAD is not covered by the provisions of refund under Rule 5 is totally absurd and vague and is liable to be set aside. Hence, the impugned show cause notice proposing to deny their refund claim on illogical grounds deserves to be quashed. 
 
11)         It has been further stated that under notification no. 27/2012-CE (NT) dated 18.06.2012, it has been clearly prescribed that “at the time of sanctioning the refund claim, the Assistant Commissioner or the Deputy Commissioner shall satisfy himself or herself in respect of the correctness of the claim and the fact that the goods cleared for export or services provided have actually been exported. While in the instant case, the goods have actually been cleared to 100% EOUs under notification no. 22/2003-CE dated 31.03.2003 under CT-3 procedure and not exported under bond or LUT as prescribed under Rule 19 of the Central Excise Rules, 2002. Moreover, it can also not be ascertained that the same goods which has been cleared by the assessee to the 100% EOUs had ultimately been exported by the said EOUs or not. In this respect, they submit that the contention of the impugned show cause notice that the refund is not allowable to them as they have not proved that the goods supplied by them are ultimately exported. In this respect it is submitted that these clearances have been made by them against CT-3 to the 100% EOU. CT-3 is issued by the department to an EOU only for procuring the goods for the purpose of exports. Also, at the time of receipt of goods against CT-3, intimation is filed and the department has power to inspect the goods and ensure that the same are ultimately used for the purpose of export. Thus, there is inbuilt mechanism in the legal provisions and procedure prescribed which ensure that the CT-3 is not misused and department is able to keep a check on the same. Therefore, contention of the impugned show cause notice that they have not proved that the goods supplied by them are ultimately exported is vague and deserves to be set aside. Moreover, they wish to submit that they have supplied goods to an 100% EOU that exports all its products and does not clears in the domestic market at all. As such, when the 100% EOU to whom goods have been cleared by us exclusively exports all its products, the question of verification that the goods supplied by them to 100% EOU have been further exported does not arise. In support of their contention that all the goods cleared by them to 100% EOU have been exported by them, they undertake that they would submit a Certificate wherein it is being certified by the 100% EOU that all the goods cleared by them have been exported by them. They submit that they are in the process of arranging the certificate from the 100% EOUs to whom they have supplied goods and the said certificate would be submitted within a period of one month’s time. As such, there is no need of verification but they are ready to furnish a certificate from the 100% EOU that the goods supplied by them have been ultimately exported by them.  Accordingly, as they have complied with all the conditions of the notification no. 27/2012-CE (N.T.), the refund of unutilized credit should be allowed to them without any further delay and the impugned show cause notice should be set aside.
 
12)         It is also contended that as they did not export the goods as prescribed under Central Excise without payment of duty under bond or LUT under Rule 19 of the Central Excise Rules, 2002 and it is also not ascertainable that the goods cleared to 100% EOUs is ultimately exported by the 100% EOUs. Further, it is also observed that they have cleared goods to 100% EOUs only 1.09% of their total clearance and their main input is imported on payment of duty including 4% AED. They have taken credit of 4% AED of Rs. 7,85,49,920/- during 2012-13 and Rs. 9,58,07,250/- during 2013-14 upto Feb, 2014. Therefore, it has been alleged that their main reason for accumulation of cenvat credit is not the clearances made to 100% EOUs. Further, it is contended that as Rule 5 of the Cenvat Credit Rules, 2004 covers refund of accumulated credit only if the assessee is not in a position to utilize his cenvat credit because of export and not for any other reason. In this respect, they submit that the answer to all the allegations has been given in the preceding paragraphs and hence, the impugned show cause notice proposing to reject their refund claim is not tenable. They submit that it has been elaborated that it is not necessary to prove inability to utilize cenvat credit in order to claim refund under Rule 5 because refund of accumulated credit that is granted under Rule 5 is proportionate to the export made by the assessee. Moreover, it has been clarified that there is no provision that refund of accumulated credit will not be available if accumulation of credit is on account of additional duty of customs under section 3(5) of the Customs Tariff Act levied on imported goods. Further, there is practically no one to one correlation required in case where refund of accumulated credit is filed that this much refund of credit pertains to basic excise duty and this much credit pertains to additional duty of customs. As such, the impugned show cause notice is not sustainable on merits and deserves to be set aside.
 
Reasoning of Judgment:After carefully going through the records of the case including show cause notice and written submissions made, it is found that the said refund has been filed on the ground that the clearances were made to 100% EOUs during the period from October, 2013 To December, 2013 without payment of duty under CT-3 certificates. As such they are unable to utilized the Cenvat credit taken in respect of the duty paid inputs used in manufacture of finished goods which were cleared to 100% EOUs.
It was found that the show cause notice was issued to the assessee proposing rejection of the refund claim on the ground that:
(i) the assessee had cleared the finished goods to 100% EOUs against CT-3 certificates under Notification no. 22/2003-CE dated 31.03.2003 without payment of duty and had not exported the same under Bond or LUT under Rule 19 of the Central Excise Rules, 2002.
(ii) the accumulation of Cenvat Credit cannot be considered only because of their clearances made to 100% EOUs the Cenvat credit is accumulated due to import of their inputs on payment of duty including 4% Additional duty of customs, as their maximum inputs are imported. Refund of Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 does not consider such accumulation of Cenvat credit.
(iii) it is also not ascertainable that the goods cleared to 100% EOUs was ultimately exported by the 100% EOUs.
It was also found that the assessee has relied on various decision’s of Hon’ble court. The fact and question considered by the Hon’ble High Court of Gujarat in the case of Commissioner of Central Excise and Customs v/s NBM Industries reported in 2012(276)E.L.T.9(Guj.) are identical with the present case. In the case of NBM Industries, the Hon’ble High Court of Gujarat considered the following questions:-
“(i) whether the tribunal was right in allowing refund of the Cenvat credit availed on inputs used in the manufacture of goods cleared by DTA unit to in a 100% Export Oriented Unit, following CT-3/ARE-3 procedure, where the provisions of Rules 5 of the Cenvat Credit Rules, 2004 are not applicable, such clearance being ‘deemed export’?
(ii) whether the tribunal was right in allowing refund of the Cenvat credit availed on inputs used in the manufacture of goods cleared by DTA unit to in a 100% Export Oriented Unit, even in absence of enabling provision that consider deemed export as physical export as in case of supply to SEZ, having been defined as export in terms of section 2(m), of SEZ Act, 2005 read with Rule 30 of the SEZ Rules, 2006?” 
and held that “Refund of – Cenvat credit- inputs used in finished goods supplied to 100% EOU – Rule 5 of Cenvat Credit Rules, 2004 provides refund also on goods which are used in intermediate product cleared for export- 100% EOUs eligible for Cenvat credit and when they pay duty in respect of DTA sales, credit is admissible to recipients – refund of Cenvat credit to be allowed.
It was also found that Hon’ble High Court of Gujarat in the case of E I DUPONT INDIA PRIVATE LIMITED VS UOI[2013-TIOL-1172-HC-HM-CX]held as follows:-
Central Excise – Refund- goods cleared to EOU – refund of CENVAT credit – in the case of Commissioner of Central Excise and Customs vs. NBM Industries reported in 2013 (29) STR (208) Gujarat = 2011-TIOL-677-HC-AHM-CX, it has been held that on inputs used in manufacturing of goods cleared by DTA units to 100% EOU refund of CENVAT credit is available and it could not be denied on the ground that it was the case of deemed export and refund would be granted only in case of physical export.
Therefore, from the above it was concluded that the assessee is eligible to get refund under Rule 5 of Cenvat Credit Rules, 2004.
In respect of the fact that the goods cleared to 100% EOUs were ultimately exported or not by the 100% EOUs, it was found that in the case MANOJ HANDLOOMS VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI [2009(240) E.L.T. 158 (Tri. – Chennai it was held that “documents evidencing clearances of final products to EOU to be accepted as proof of export envisaged in clause (6) of appendix to Notification no. 11/02-C.E.(NT) –Rule 5 of Cenvat Credit Rules, 2004. [para4]”. In the present case, it find that the copies of relevant ARE-3 submitted with the claim it has been duly certified that the goods was received in full and were duly warehoused both by the Central Excise Officer in charge and by the authorized signatory of the unit. Therefore, it was held that the goods related to which refund claim has filed were actually received in relevant 100% EOUs and hence the assessee is eligible to get refund under Rule 5 of Cenvat Credit Rules, 2004.

As such, it was found that the assessee is entitled for refund of Cenvat Credit under provisions of Rule 5 of the CENVAT Credit Rules, 2004. The refund claim filed by the assessee was calculated on the basis of formula prescribed under rule 5 of Cenvat Credit Rules, 2004 as per the details given below:

Refund amount= (Export turnover of goods+ Export turnover of services) *net   cenvat credit       
                                                  Total turnover

(i) Net Cenvat Credit:
Net cenvat credit as prescribed under rule 5 of Cenvat Credit Rules, 2004 means total Cenvat credit availed on inputs and input services by manufacture or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period.
On perusal of documents submitted with the claim, it find that during the relevant period (i.e. from October, 2013 to December, 2013) the total cenvat credit taken in inputs services is Rs. 16,71,35,821/- and the amount reversed in terms of sub-rule (5C) of rule 3 is Rs. 8,99,157/-. Therefore, net cenvat credit availed on inputs and input services comes to Rs. 16,62,36,664/- (Rs. 167135821- Rs. 899157).

(ii) Export turnover of goods:
Export turnover of goods as prescribed under Rule 5 of Cenvat Credit Rules, 2001 means value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking.
It find that during the relevant period that i.e. from October, 2013 to December, 2013 the assessee has exported (cleared to 100% EOU) a quantity of 104.4 MT valued to Rs. 1,75,05,100/-. Therefore during the relevant period export turnover of goods comes to Rs. 1,75,05,100/-.

(iii) Export turnover of service:
Since the assessee has not exported any service during the relevant period that i.e. from October, 2013 to December, 2013. Therefore, export turnover of service comes to 0.

(iv) total turnover:
Total turnover as prescribed under rule 5 of Cenvat Credit Rules, 2004 means sum total of (a) all excisable goods cleared during the relevant period including exempted goods, (b) dutiable goods and excisable goods exported,(c) export turnover of services and all inputs removed as such under sub-rule (5) of rule 3 against an invoice during the period for which the claim is filed.
It was found that during the relevant period that i.e. from October, 2013 to December, 2013 value of goods cleared during the quarter including exempted goods, dutiable goods and goods exported is Rs. 1,36,49,77,637/- and value of all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the quarter is Rs. 21,28,192/-. Therefore the total turnover comes to Rs. 1,36,71,05,829/- (Rs. 1,36,49,77,637/- + s. 21,28,192/-).
Therefore as per the formula refund amount is calculated as under:
Refund amount= (17505100+0) *166236664    = 21,28,577/-
                              1367105829
Thus the admissible refund of unutilized input credit in cash is Rs. 21,28,577/-.
It was also found that an amount of Rs. 9,89,12,304/- was lying in balance as input credit at the end of quarter and an amount of Rs. 9,46,94,653/- was lying on the day of filing of the refund claim. Therefore, it hold that the amount of refund claimed is not more than the amount lying in balance at the end of quarter for which refund claim is made or at the time of filing of the refund claim. It was further found that the claimant has already debited the claimed amount of Rs. 21,28,577/- from his Cenvat Credit Account vide RG 23A part-II entry no. 3031/24.03.2014.

The claim has been filed within the time limit of one year as provided under the provisions of section 11-B of the Central Excise Act, 1944. The doctrine of unjust enrichment is not applicable in this case in terms of clause (c) of the First Proviso to section 11B(2) of the Central Excise Act, 1944, as the same is a refund of credit of duty paid on excisable goods used as inputs as well as input services in accordance with the rules made, or any notification issued ibid.

Thus, in view of above discussion, It was held that refund of the unutilized CENVAT credit of Rs. 21,28,577/- is admissible to the assessee.

Decision:-SCN was dropped.

Conclusion:-The essence of this case is that refund of accumulated credit filed under Rule 5 of the Cenvat Credit Rules, 2004 is also admissible with respect to inputs used in the manufacture of goods cleared to 100% EOU. The contention that the refund of accumulated credit under Rule 5 is admissible only for physical exports and not deemed exports is not tenable in view of the decision given by the Gujarat High Court in the case of Shilpa Copper Wire Industries, NBM Industries, E I Dupont India Pvt. Ltd. etc. Accordingly, by extending the benefit of the above cited decisions, the refund claim under Rule 5 filed with respect to clearances to 100% EOU was also allowed.