Pradeep Jain - Chartered Accountant

Case Study

Prepared by: -

CA. Pradeep Jain

Sukhvinder Kaur

and Anjali Bihani

Introduction: -

Rule 5 of the Cenvat Credit Rules, 2004 provides for refund of the accumulated cenvat credit to the assessee which remains unutilised. Thus, if an assessee has procured excisable inputs and used them to manufacture goods to be exported at ‘Nil’ rate of duty, then he can get refund of the cenvat credit taken on the excisable inputs. But the position of availability of credit to a person who is clearing goods to a 100% EOU is not clear. In some cases, the refund of credit on deemed export was allowed but in some other cases, the refund was denied on the ground that deemed export cannot be equated with physical exports. In the case under study also, the same issue was involved.

Relevant Legal Provisions: -

Rule 5 of the Cenvat Credit Rules, 2004: -

5. Refund of CENVAT credit: - Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) service tax on output service,

and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.

Explanation: For the purposes of this rule, the words 'output service which is exported' means the output service exported in accordance with the Export of Services Rules, 2005.

Section 11B of the Central Excise Act, 1944: -

11B. Claim for refund of duty.-

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person:

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act;

Provided further that] the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.

(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] is satisfied that the whole or any part of the duty of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:

Provided that the amount of duty of excise as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to—

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant's account current maintained with the Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(e) the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(f) the duty of excise and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).

(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section

(4), may be rescinded by the Central Government at any time by notification in the Official Gazette.

Explanation.—For the purposes of this section,—

(A) "refund" includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(B) "relevant date" means,—

(a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods,—

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or

(ii) if the goods are exported by land, the date on which such goods pass the frontier, or

(iii) if the goods are exported by post, the date of dispatch of goods by the Post Office concerned to a place outside India;

(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;

(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;

(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;

(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(ea) in the case of goods which are exempt from payment of duty by a special order issued under sub-section (2) of section 5A, the date of issue of such order;

(eb) in case where duty of excise is paid provisionally under this Act or the rules made there under, the date of adjustment of duty after the final assessment thereof;

(f) in any other case, the date of payment of duty.

(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction ;.

Central Excise Department, Ahmadabad v/s M/s. Rangdhara Polymers

[Final Order No. A/9697/WZB/AHD/10, S/78/WZB/AHD/10, M/200/WZB/AHD/10, dated 25.01.2010]

Brief Facts of the Case: -

- The appellant-assessee were supplying excisable goods to a 100% EOU. Since cenvat credit had been accumulated on the inputs used by them and remained unutilised, they filed for refund of accumulated cenvat credit on 03.07.08 as per the provisions of Rule 5 of the Cenvat Credit Rules, 2004.

- The Original Authority rejected the refund claim totally on the ground of limitation as well as on admissibility.

- In appeal, the Commissioner (Appeals) held that appellants were eligible for the refund on merits. But on time bar issue it is held that a portion of the claim relating to period from April 2007 to June 2007 is not admissible as it was filed on 03.07.08. Thus, part of the refund claim was held to be inadmissible and rest of the portion of refund claim was allowed.

- Aggrieved by the part of refund claim being rejected as time barred, the Appellant assessee filed appeal before the Tribunal. Revenue also filed appeal before the Tribunal challenging the portion of the order allowing the refund claim. Revenue has also filed application for stay as well as an erly hearing application.

Assessee’s Contentions: -

Ø Appellant-assessee contended that there were several other decisions of the Tribunal which have taken a contrary view.

Ø The appellant relied upon the decision in the case of Sanghi Textiles Limited [2006 (07) LCX 213]. The appellant also relied upon the judgments given in the case of Commissioner of C. Ex., Ludhiana v/s Self Knitting Works [2007 (220) ELT 926 (Tri-Del)] and Shilpa Copper Wire Industries [2008 (2) LCX 0061]

Ø On the issue of limitation, the appellant relied upon the decision of the Tribunal in the case of Anjani Synthetics Limited [2001 (132) ELT 688 (Tri.)]. It was contended that the time limit was not applicable. Reliance was also placed on the judgment given in Patodia Syntex Ltd [2009 (239) ELT 506 (Commr. Appl.)], Commissioner of C. Ex., Ahmedabad v/s National Ceramic Works [2009 (237) ELT 576 (Tri-Ahmd)]

Revenue’s contention: -

Ø Revenue contended that the Commissioner (Appeals) had erred in coming to the conclusion that the appellant-assessee was eligible for the refund in view of the decisions of the Tribunal given in the case of S.V. Business Private Limited v/s CCE, Thane-I [2006 (198) ELT 408 (Tri-Mum)] and in the case of Inox Air Products Limited v/s CCE Rajkot [2007 (212) ELT 408 (Tri-Ahd)].

Ø Revenue submitted that the in Inox Air Product case, the decision was rendered relying upon the decision in the case of Blue Star Limited v/s Commissioner [2003 (155) ELT 322 (Tribunal)] and SV Business Pvt Ltd case. The decision in the SV Business Pvt Limited was rendered on the ground that the Tribunal had taken a view in the case of Blue Star Limited that goods sent to 100% EOU are one step away from completion of exports and this by itself cannot conclude export. On this basis it was held that claim that goods sent to 100% EOU can be equated with the exports cannot be upheld. They are deemed export but such fiction of law is created only for a specific purpose and cannot be equated with exports in a blanket manner.

Ø Revenue submitted that the deemed exports cannot be equated with the exports and Rule 5 of Cenvat Credit Rules provides for refund of accumulated credit only and in the case of exports and not in the case of deemed export.

Issue before the Tribunal: -

The issue before the Tribunal was

Whether Rule 5 of Cenvat Credit Rules allows refund of accumulated credit of deemed export or only ambits real exports. Whether time limit prescribed under Section 11B applies to refund of unutilized credit under Rule 5 of Cenvat credit Rules?

Reasoning of the Judgment: -

The Tribunal held as under:-

v The Tribunal held that the Bangalore Bench of the Tribunal in the decision given in Sanghi Textiles Limited’s case took note of the decision given in the case of S. V. Business Pvt Ltd also and came to the conclusion that even in the case of deemed exports, refund is admissible. It was noted that the difference between the decisions in the case of Sanghi Textiles and other decisions was that, in the case of Sanghi Textiles, the Tribunal has considered the relevant rules and notifications and came to the conclusion that refund of cenvat credit is available even in the case of deemed export. In that case, the Tribunal was considering the admissibility of refund in respect of deemed credit.

v The Tribunal further noted that the same Division Bench which had rendered the decision in the case of Inox Air Products Pvt Limited, had considered this issue in the case of Shilpa Copper Wire Industries [2008 (2) LCX 0061] and came to the conclusion that refund is admissible in case of deemed exports.

v Accordingly, the Tribunal held that on merits that Revenue has no case and on the basis of decision of the Tribunal in the case of Sanghi Textiles and Shilpa Copper Wire Industries, the appeal filed by the Revenue is required to be rejected.

v On the limitation aspect, the Tribunal held that the said aspect was considered in the case of Sanghi Textiles and it was held that limitation under Section 11B would not be applicable in the case of refund claim for accumulated credit under Rule 5 of the Cenvat Credit Rules, 2004.

v The Tribunal held that in the absence of specific provisions related to refund of accumulated credit in Section 11B of the Central Excise Act, 1944, the claim of the appellant that time limit is not applicable has to be upheld as similar view was taken in the decision cited above.

v In the end, the impugned order was set aside as regards rejection of refund claim.

Decision of the Tribunal: -

Appeal filed by Revenue rejected by the CESTAT. Appeal filed by the appellant is allowed. Stay application and early hearing application disposed of accordingly.

Comments & Conclusion: -

This judgment is a very favourable decision for the assessees who are supplying goods to 100% EOU and have accumulated unutilised cenvat credit lying with them. Also, the refund of cenvat credit under Rule 5 has been made available to deemed exports also. However, it cannot be said that the issue has been settled. The Department may be bound to appeal before the higher forum. Till the decision of the higher forum is not given, the issue cannot be said to have been set aside.

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PJ/CASE STUDY/2009-10/032
22 February 2010

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PJ/CASE STUDY/2009-10/032 22 February 2010

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PJ/CASE STUDY/2009-10/032
22 February 2010