Whether the rebate claim of duty paid on the goods exported is permissible to the assessee under Rule 18 of Central Excise Rules, 2002?

CASE STUDY

Introduction:-

The assessee was availing advance licence under notification 93/2004- Customs dated 10.09.2004 and also paid duty on finished goods to claim rebate Claim under Rule 18 of Central Excise Rules. The Assessee contended that one is input stage benefit and other is finished good stage benefit and both of them are available. But the department contended that both the benefits are not available to manufacturers. This is dispute under this case study.

M/s Bhansali Engg. Polymers Ltd. v/s Commissioner of Central Excise Division, Jodhpur
[Order-In-Appeal no. 30-31 (RDN)CE/JPR-II/2012 dated: 10.09.2012]

Relevant Legal Provisions:

Central Excise Rules, 2002:-

Rule 18.Rebate of duty- 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 he specified in the notification.

Notification no. 93/2004-cus:-

Condition no. (v)that the export obligation as specified in the said licence (both in value and in quantity terms) is discharged within the period specified in the said licence or within such extended period as may be granted by the Licensing Authority by exporting resultant products, manufactured in India which are specified in the said licence and in respect of which facility under Rule 18 (rebate duty paid on the materials used in the manufacture of the resultant product) or sub-rue (2) of Rule 19 of the Central Excise Rules, 2002 has not been availed.
Provided that an Advance Intermediate Licence holder shall discharge export obligation by supplying the resultant products to exporter in terms of Paragraph 4.1.3 (b) of the Foreign Trade Policy;

Issue: - Following issue was made before the Commissioner:-

Whether the rebate claim of duty paid on the goods exported is permissible to the assessee under Rule 18 of Central Excise Rules, 2002?

Brief Facts:-

ü        The present appeals were filed under Section 35 of the Central Excise Act, 1944 by the appellant-assessee against the OIO no. 149/2011-R dt. 25.7.2011 and 166/2011-R dt. 18.8.2011 passed by the Deputy Commissioner, Central Excise Division, Jodhpur.
ü        The appellants are manufacturer of Styrene Acrylonitrile (SAN) Co-Polymers and ABS Ter Polymers falling under sub heading No. 3903.20 to the First Schedule of the Central Excise Tariff Act, 1985 and have filed refund claim of 930122/- and 7220318/- under Rule 18 of Central Excise Rules, 2002 in respect of Central Excise duty paid on the goods exported under the Notification No. 19/2004-CE dt. 6.9.2004. The appellants were issued show cause notices alleging various grounds for rejection of the claims, which were adjudicated by the adjudicating authority rejecting the refund claims. But the main allegation was that they have exported the goods under advance licnece as well as availing the benefit of rebate claim under rule 18 and both the benefits are not available simultaneously. Aggrieved by the impugned orders the appellant filed the present appeals.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner (Appeals):

Ø       The appellant submit that the impugned Orders in Original issued by the Adjudicating Officer are wholly and totally erroneous and are liable to be set aside.

Ø       They submit that the learned Adjudicating Authority has held in the impugned order that as per condition no. (v) of the Notification No. 93/2004-Customs dated 10.09.2004, the facility under Rule 18 or Sub-Rule (2) of Rules 19 of the Central Excise Rules, 2002 is not available to the licensee getting licence under Advance Licence Scheme. In this regard, they submit that from condition no. (v) of the notification, it is clear that rebate of duty paid on material used in manufactured in final product will not be allowed. This is clear from the language itself that the input stage rebate under Rule 18 will not be allowed. It does not say anything about finished good stage benefit.

Ø       There are two separate benefits available under Rule 18. Even there is separate notification under Rule 18 for input stage benefit and final product stage rebate. Notification number 21/2004-C.E. (N.T.) dated 6.9.2004 allows input stage rebate claim whereas notification number 19/2004-C.E.(N.T.) allows finished goods stage rebate claim. Thus, it is clear from separate notification also these are two separate benefits. Even the procedures prescribed under both the notifications are also totally different. Even the separate forms are prescribed under the both. ARE-1 is used for finished goods rebate where as Form ARE-2 is used for input stage rebate. Thus, it is clear from the above that these are two separate procedures for input stage benefit and finished good stage benefit. When they have exported the goods under ARE-1 then it clearly establishes that they intend to take the finished good stage benefit only. And notification 93/2004 cited supra intends to restrict only the input stage benefit and not the finished goods rebate. They have claimed the finished goods stage benefit and the same should be allowed to them. But the learned adjudication officer did not adhere to their submissions and hence such an erroneous order-in-original is liable to be set aside.

Ø       In continuation, the appellant submit that the condition no. (v) of the Notification No. 93/2004-Cus provided that the benefit under Advance licence to import duty free raw material will not be available if rebate under Rule 18 of CER, 2002 is claimed at the input stage i.e. on the materials used in the manufacture of resultant product or in case of procurement of raw material at Nil rate of duty under Rule 19 (2).

It is submitted that they in their reply had pointed out the fact that the said condition was amended. Before amendment, the condition no. (v) was prescribed that benefit of Advance license will not be available if rebate under Rule 18 is claimed. VideCorrigendum (Drawback/P. N. 2/2005 Dated. 17.05.2005) the words & figures “under rule 18” was corrected to read as “under rule 18 (rebate of duty paid on materials used in the manufacture of resultant product)”.

It is submitted that a perusal of the condition (v) after amendment clearly provided that the benefit under Advance License scheme will not be available if rebate is claimed at the input stage i.e. on the materials used in the manufacture of resultant product. It is submitted that nowhere in the condition no. (v) it was specified that in case rebate is claimed on the finished goods the benefit of Advance License scheme will not be available.

Thus, in case the benefit for raw material or input stage benefit was claimed by the assessee, then in that case the benefit of importing duty free raw material under the Advance Licence was not allowed as this will amount to double benefit. However, in the case of the appellant, they have not claimed the input stage rebate claim under Rule 18 of the CER, 2002 but had claimed rebate of duty paid on the finished goods which were exported. They have claimed finished goods stage benefit, therefore, they have not violated the condition no. (v) of the Notification No. 93/2004-Cus. Therefore, they were entitled to claim both the benefit for input stage i.e. duty free import under Advance licence as well as rebate of duty paid at the time of export of final product.

Ø       In continuation, it is submitted that they have in their reply to the show cause notice contended that they had claimed the rebate of duty under Rule 18 of the CER, 2002 for which the procedure prescribed under Notification No. 19/2004-CE(NT) dated 06.09.2004. Therefore, it was required to be ascertained that whether they were fulfilling the conditions of these Central Excise provisions or not. However, the learned Adjudicating Authority has relied upon the condition no. (v) of the custom Notification No. 93/2004-Cus which provides exemption from customs duties on inputs imported under Advance License Scheme which is entirely covered under Custom Notification as well as under Foreign Trade Policy. Therefore, for a condition prescribed under Custom Notification No. 93/2004-Cus, the benefit of rebate could not be denied under Central Excise Notification No. 19/2004-CE(NT). As such, the action should have been undertaken for recovery of Custom duty exempted under Advance licence by invoking the provisions of Customs Act. But instead, the impugned order has rejected the rebate claim governed by the provisions of Central Excise Act, 1994 which is totally erroneous. Therefore, the rebate claim should not have been denied. They are alleging the contravention of a custom notification then provisions of Custom Act can be invoked. But the Custom as well as DGFT authority has not objected the same. They have signed ARE-1 and shipping bills. This shows that it is clearly permissible. Hence the demand should be given to disallow the benefit of advance licence by custom authorities. On the contrary they are issuing demand for Central excise authorities and that too benefit of rebate is being disallowed. There is no condition in Rule 18 as well as notification that rebate will not be allowed if advance licence is applied. Hence the complete demand is not sustainable in eyes of law. But the impugned order-in-original has disallowed the rebate claim. Such an order is not legally sustainable in eyes of law.

Ø       It is submitted that in support of above contention of disallowance of rebate under Central Excise provisions is not sustainable but the action should have been taken under Custom Act, they have placed reliance on the judgment given in the following judgments wherein for contravention of the drawback rules, it was held that action is required to be initiated under the provisions of Customs and Central Excise Duties Drawback Rules, 1995, denial of rebate claim is not justified in such circumstances. The case laws relied upon are reproduced hereunder:-

In Re: Munot Textiles [2007(207) E.L.T. 298(G.O.I.)]

Commissioner of C. EX., Gurgaon vs. Simplex Pharma Pvt. Ltd. [2008 (229) E.L.T. 504 (P & H)]

Therefore, the rejection of rebate claim (governed by the provisions of Central Excise Act, 1944) for non fulfilment of conditions prescribed under Advance Authorisation Scheme of the Foreign Trade Policy and Customs notification was not justified and such an order is not tenable and is liable to be quashed.

Ø       Appellant further submit that the condition no. (v) of the Notification No. 93/2004-Cus is plain and unambiguous. It is specifically stated therein that the rebate of input stage duties is not allowed along with benefit under Advance Licence. But the impugned order has suo motto included the finished goods stage duty in the provision which is simply meant for input stage duties. By doing so, it has taken out a meaning not intended by the law makers which is not justified. It is further held by the highest court of India in the case of Truetuf Safety Glass Industries vs Commissioner of Sales Tax, UP [2007 (215) ELT 14 (SC)] that it is a settled principle of law that the Court cannot read anything into a statutory provision which is plain and unambiguous. Similar decision has been given in the case of TATA CONSULTANCY SERVICES VersusSTATE OF ANDHRA PRADESH [2004 (178) E.L.T. 22 (S.C.)] by holding the view that Courts should not be over zealous in searching ambiguities or obscurities in words which are plain. Thus, the learned Assistant Commissioner, by wrongly interpreting a clear and unambiguous provision, has violated the principle laid down by the Court of last resort. Such an interpretation contrary to the principle of literal construction is not justified and is liable to be quashed. The impugned order should be set aside and the appeal should be allowed.

Further they submit that the learned Assistant Commissioner has taken the view that the word ‘rebate of duty’ includes both input stage and finished goods stage. In this regard, it is submitted that it has been held by the hon’ble Supreme Court in the case of ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [2006 (202) E.L.T. 561 (S.C.)] that where two interpretations of a rule are possible, the one which upholds its validity should be preferred irrespective of the one which invalidates it. In the instant case, if the interpretation taken by the learned Assistant Commissioner is accepted even for the sake of argument, then too it would render the framing of two concepts of rebate useless. If the learned Assistant Commissioner says that rebate claim mentioned in Notification No. 93/2004-Cus includes both input stage and finished goods stage, then there was no need to prescribe the two concepts of rebate and two separate procedures for claiming them. Thus, the interpretation taken by the respected Assistant Commissioner is not sustainable in the light of above Supreme Court decision.

Ø       It is further submitted that the learned Assistant Commissioner has not considered the judgment relied upon by them wherein the Hon’ble CESTAT has allowed the rebate claim under scheme DFIA in case APTAR BEAUTY & HOME INDIA PVT. LIMITED [2011(267)ELT-401 (G.O.I).

In the above referred case, the assessee had availed the benefit of DFIA scheme. DFIA is allowed as a input stage benefit, i.e., it is issued for setting off the duties payable on the import of raw material used for manufacture of export goods. Thus, it is an input stage benefit. Besides availing the DFIA, the assessee had claimed the rebate claim in respect of the duties paid at the time of removing the goods for export. Thus, they had claimed the finished goods stage. This was objected by the adjudicating authority by holding the view that the allowing the rebate claim along-with advance authorization would tantamount to double benefit. But this contention of department was rejected and the issue was settled in favour of the assessee by holding the view that rebate of duty paid on material used in manufacture of export goods is not allowed along-with DFIA. Since the assessee has claimed the rebate of duty paid on the finished goods and there is no bar in doing so; the rebate of duty paid on the finished goods is allowed. Hence, it is held that the rebate of duty paid on material used in manufacture of export goods and rebate of duty paid on the finished goods exported are two separate things. When the restriction is specifically regarding the rebate of duty paid on the material used in the manufacture of the export goods, it cannot be extended for the duty paid on the finished goods. As such, in absence of specific restriction on finished goods stage rebate vis-a-vis DFIA, the rebate of finished goods stage was allowed.

Further, relevant notification number of DFIA scheme under above case is 40/2006-custom dated 1.5.2006. In the aforesaid case, the department alleged the contravention of Clause (iiib) of aforesaid notification. This clause (iiib) of notification 40/ 2006-customs dated 1.5.2006 clearly read as follow:-

“that in respect of imports made after discharge of export obligation in full, and if the facility under Rule 18(rebate of duty paid on material used in manufacture of resultant product) or sub-rule 2 of Rule 19 of Central Excise Rules, 2002 or CENVAT credit under CENVAT Credit Rules, 2004 has not been availed----------“

Thus, it is clearly the same clause as mentioned in notification 93/2004 in their case. But the learned authority, while referring the identically worded clause of aforesaid notification, has allowed the finished good stage rebate claim under Rule 18.

Accordingly, they in their reply had submitted that in their case also they had claimed the finished goods stage rebate just like M/s Aptar Beauty and Home India Pvt. Ltd. In the case of Aptar, the input stage benefit was DFIA and in their case it is Advance licence. However, it is clear from this case that the claiming of input stage benefit once and finished goods stage benefit only once does not tantamount to double benefit. Thus, the same analogy was applicable in their case also as they have claimed both the benefits only once. The input stage benefit (i.e. Advance licence) is already allowed to them and now the finished goods stage benefit (i.e. rebate filed under Notification No. 19/2004-C.E.(N.T.) Dated 06-09-2004) should also be allowed in the light of aforesaid decision. However, the learned Assistant Commissioner has not considered the judgment and impugned order has not given any reasons for rejecting the same. Even the language in both the notifications is same and hence the interpretation of both the notifications cannot be different. Such an order amount to non-speaking order and is liable to be set aside as it violates the principles of natural justice. It has been held by hon’ble Supreme Court in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] that an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law. Therefore, the impugned order is not sustainable and is liable to be set aside.

Ø       The appellant further submit that the impugned order-in-original says that they have shown the use of exempted material in the manufacture of these final products. But they have not shown any such detail in the documents submitted by them. These details are provided when goods are exported under ARE-2 but they have exported under ARE-1. Even there is no column to show such details. Hence the conclusion drawn by learned adjudication officer is totally erroneous and is liable to be set aside.

Ø       The appellant further submit that if the spirit of department allegation is taken that custom notification does not allow the export under Rule 18 and Rule 19. But there are only two available Central Excise procedures to export the finished goods. If these are not availed then export cannot take place. Hence the analogy drawn in impugned order as well as allegation of department is not legally sustainable. The only logical as well as legal conclusion can be drawn is that it is related to input stage benefit only. Hence the finished good stage benefit should be allowed.

Ø       The appellant further submit that notification 93/204-customs says that the benefit under Rule 19(2) of Central Excise Rules, 2002 should not be availed. The relevant Rule 19(2) reads as follows:-

“any material may be removed without payment of duty from the factory of the producer or the manufacturer or the warehouse or other premises, for use in manufacture or processing of goods which are exported, as may be approved by the commissioner”.

But Rule 19(1) reads as follows:-

“Any excisable goods may be exported without payment of duty from a factory of the producer or the manufacturer or the warehouse or any other premises, as may be approved by the commissioner”.

Thus, from above, it is clear that there are two separate clauses for finished goods benefit and input stage benefit under rule 19. Rule 19(1) allows finished good stage benefit and Rule 19(2) allow the input stage benefit. The inputs are procured duty free under rule 19(2) and used in export goods and are exported under ARE-2 application. But the notification specifically says 19(2) i.e. input stage benefits. But there is no such separate clause under rule 18. Hence it is qualified by words “material used in manufacture of resultant export good”. This clearly shows that it is input stage benefit.

Furthermore, it cannot happen that the input stage benefit is denied under rule 19 but the finished good stage benefit is denied under rule 18. These both provisions are complementary to each other. Even the procedure under both the rules for the input stage benefit / finished good stage benefit is same. Hence, it clearly implies that the input stage benefit is being denied. But the learned authority has failed to accept the same. Hence the impugned order-in-original is liable to be set aside.

Ø       The appellant further submit that in the impugned order, the learned Assistant Commissioner has given a finding that the claimant has not filed the rebate claims under Rule 18 or Sub-rule (2) of Rule 19 of the Central Excise Rules, 2002, which shows that the claimant is well aware of the fact that they are not supposed to file these rebate claims under Rule 18 or Sub-Rule (2) of Rule 19 of the Central Excise Rules, 2002, as they are getting benefits of Advance Authorisation Licence Scheme governed under Notification No. 93/2004-Customs dated 10.09.2004.

In this regard, they submit that the above finding is not sustainable as it is clear from the rebate claims filed by them that the same have been filed by them under Rule 18 of the Central Excise Rules, 2002. It is submitted that they had paid duty at the time of export of goods and as the goods have been exported, they have filed rebate claim under Rule 18 only. They have failed to understand the version of learned adjudication officer. They have paid the duty on clearance of final product from their factory and rebate of the same is being claimed. This is allowed under rule 18 only. There is no other provision available in statue which allows the rebate claim of duty paid on final export goods. This is Rule 18 only. Thus, the contention of learned Adjudicating Authority is totally erroneous and they have filed the rebate claim in same format in which filed for earlier period also. Hence the allegation is totally unsustainable and liable to be set aside.

It is further submitted that the impugned finding is not sustainable as no such ground was specified in the impugned show cause notice issued proposing to reject their rebate claims on such ground. Thus, it is submitted that they were not given an opportunity to submit their contentions with regard to the afore-said finding and therefore, the impugned order has violated the principles of natural justice. It is further submitted that the learned Assistant Commissioner had traveled beyond the four walls of the show cause notice and given a finding on the issue which was never raised in the impugned show cause notice. Therefore, the impugned order is not sustainable and is liable to be set aside.

In the case of M/s Apotex Pharmachem India Pvt Ltd v/s Commissioner of Service Tax, Bangalore [2011-TIOL-150-CESTAT-BANG] it was held as under:

“It was also found that the show cause notice was issued for rejection of refund claim but both the Authorities below have not addressed themselves within the allegations mentioned in the show cause notice. It was held that it is settled law that quasi-judicial authorities should confine their findings and conclusions to the allegations made in the show cause notice after considering the defence put up by the assessee on such allegations.”

The order going beyond the show cause notice is not sustainable and liable to be set aside. This decision has been given in the case of JAY AR ENTERPRISES Versus COMMISSIONER OF CUSTOMS (SEA), CHENNAI [2007 (210) E.L.T. 459 (Tri. -Chennai)]. The verdicts of hon’ble Chennai Tribunal are produced as follows:-

“Order beyond show cause notice not sustainable - DEPB credit - Denial of - Show cause notice not proposed the denial hence, direction for debit of DEPB credit is beyond the scope of show cause notice, hence, not sustainable.”

Ø       The analysis of above decision makes it clear that where the order is passed on the grounds other than what are proposed in the show cause notice, it is not legally viable. Similar decision was given in the following case:-
·          BHAGWATI SILK MILLS Versus COMMISSIONER OF CENTRAL EXCISE, SURAT [2006 (205) E.L.T. 182 (Tri. - Mumbai)]

·          M/s Oswal Paper & Allied Industries Vs CCE, Jalandhar [2010-TIOL-678-CESTAT-DEL]

·          Caliber Point Business Solutions Ltd Vs CST, Mumbai [2010-TIOL-554-CESTAT-MUM.]
In the above referred cases, it was held that the order should align with the allegations of the show cause notice. If the order is not passed in accordance with the grounds specified in the show cause notice, it is not tenable in the eyes of the law. In the present case also, no allegation was raised that the rebate claims were not filed under Rules 18 or under Sub-rule (2) of Rule 19 of the Central Excise Rules, 2002. As such, raising the allegation in the impugned order makes the order beyond the provisions of show cause notice. Such an order is not tenable in the light of aforesaid decisions. Thus, extending the ratio of above decisions, the impugned order in original should be quashed and the refund should be allowed.

Reasoning of the Commissioner (Appeals):-

è      The Commissioner (Appeals) held that the main issue in these appeals is regarding availability of rebate claim of duty paid on the goods exported under Rule 18 of Central Excise Rules, 2002 read with Notification no. 19/2004-CE(NT) dt. 6.9.2004 and condition no. (v) of Notification no. 93/2004-cus dt. 10.9.2004 together with its corrigendum to said notification dt. 17.5.2005.
è      By Notification no. 19/2004-CE (NT) dt. 6.9.2004 under rule 18 of the Central Excise Rules, 2002 the procedures and limitations were laid down under which the impugned goods were exported and claim of the duty paid on the exported goods were filed.
è      It was observed that the appellants were also holder of Advance Licence under the Advance Authorization Scheme contained in Chapter 4 of Foreign Trade Policy 2009-14, and imported duty free raw materials under Notification No. 93/2004-Cus dated 10.9.2004, and exported resultant goods under Notification No. 19/2004-CE (NT) dated 6.9.2004 (as amended), on payment of duty, and filed impugned refunds of the duty paid on the goods exported.
è      Further it was held that in the impugned orders it has been admitted that the appellants are holder of Advance Licence and, the goods imported duty free, have been used in the production of the goods exported. It has also not been disputed that the goods were exported under Rule 18 of Central Excise Rules, 2002 on payment of duty following the procedure laid down under Notification No. 19/2004-CE(NT) dated 6.9.2004 (as amended), further minor procedural lapses noticed, were also condoned in the impugned orders.
è      The core issue on which the said refunds were rejected is that as per condition no. (v) of the Notification No. 93/2004-Cus dated 10.9.2009 the licensee while availing facility under this notification would not avail any facility under Rule 18 or sub-rule (2) of Rule 19 of the Central Excise Rules, 2002, and since the instant refund claims were filed under Rule 18 of the Central Excise Rules, 2002 following the procedure laid down under Notification No. 19/2004 CE(NT) dated 6.9.2004 (as amended), therefore the appellants were not entitled for the refund of the duty paid on the goods exported. In this context they observe that under Rule 18 of the Central Excise Rules, 2002, two types of rebate on the goods exported thereunder have been stipulated, in the first part it entitles the rebate of duty paid on the goods exported, following the procedure laid down under Notification No. 19/2004 CE(NT) dated 6.9.2004(as amended) and, under the second part it entitles the rebate of duty paid on materials used in the manufacture or processing of such goods exported following the procedure laid down under Notification No. 21/2004-CE(NT) dated 6.9.2004 (as amended). Both these benefits have been separated by the word “or” meaning thereby that at any one time only one type of rebate is available to the exporter. Further condition no (v) of the Notification No. 93/2004- Cus dated 10.9.2009, read with its corrigendum dated 17.5.2005 makes it clear that it only debars the availment of rebate in respect of the duty paid on materials used in the manufacture of the goods exported, under the second part of Rule 18 following the procedure laid down under Notification No. 21/2004-CE(NT) dated 6.9.2004 (as amended). Whereas, in the instant case, since the appellants have paid the duty on the goods exported, under Rule 18 of the Central Excise Rules, 2002 following procedure laid down under Notification No. 19/2004 CE(NT) dated 6.9.2004(as amended), and not in the second part thereof, hence they were entitled to the refund claim under Rule 18 of the Central Excise Rules, 2002 following procedure laid down under Notification No. 19/2004-CE(NT) dated 6.9.2004 (as amended) along with the facility of Notification No. 93/ 2004- Cus dated 10.9.2004. Thus, they allowed both the appeals subject to following other procedures and conditions laid down in this regard.

Decision:-

Appeals allowed.

Conclusion:-

This is very good decision wherein the learned commissioner clearly held that the impugned notification 92/2004 only debars input stage benefit under rule 18 and not the finished good stage benefit under Rule 18. Hence the assessee has availed only finished good stage benefit which is not denied in the notification.

************

Comments

PJ/CASE STUDY/ 2012-13/26
06 October 2012

Post a Comment

Query

Comments

PJ/CASE STUDY/ 2012-13/26 06 October 2012

Post a Comment

Query

PJ/CASE STUDY/ 2012-13/26
06 October 2012