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Elcomponics Sales Pvt. Ltd. v. Commissioner Of Central Excise, Noida

CESTAT

Oct 13, 2011

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Opinion

Factual and Procedural Background

The appellants are a 100% Export Oriented Unit (EOU) manufacturing connectors and connector assemblies for export. They availed cenvat credit on central excise duty paid on inputs and service tax paid on services used in or in relation to manufacture. The appellants effected both physical exports and deemed exports (supplies to other 100% EOUs). Because the appellants had no DTA clearances, they could not utilize the accumulated cenvat credit against duty on DTA clearances and therefore applied for cash refund of that accumulated credit under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-Customs. Refund claims were filed quarterly for the periods: January–March 2006; April–June 2006; July–September 2006; and October–December 2005 (with specific amounts claimed for each period).

The revenue disallowed refund claims to the extent the cenvat credit related to supplies of final products to 100% EOUs, on the ground that such supplies are deemed exports and Rule 5 applies only to physical exports. The Assistant Commissioner rejected the refund claims (with specified amounts). The Commissioner (Appeals) upheld those rejections, and the appellants filed the present four appeals against the Commissioner (Appeals) order.

Legal Issues Presented

Whether the provisions of Rule 5 of the Cenvat Credit Rules, 2004 are applicable to clearances made by a manufacturer to a 100% EOU without payment of duty (i.e., whether supplies to 100% EOUs, which are "deemed exports", qualify for cash refund under Rule 5).
Whether the limitation period under Section 11B of the Central Excise Act is applicable to cash refund claims made under Rule 5 of the Cenvat Credit Rules, 2004.
Whether the Foreign Trade (Exim) Policy (para 8.3 of the Exim Policy 2004-2009) — which lists benefits admissible for deemed exports — precludes an additional benefit of cash refund of accumulated cenvat credit for supplies to 100% EOUs.

Arguments of the Parties

Appellant's Arguments

The appellants contended that Rule 5 of the Cenvat Credit Rules, 2004 applies to clearances to 100% EOUs and therefore they are entitled to cash refund of accumulated cenvat credit for such supplies.
They relied on a series of decisions (High Court and Tribunal) including judgments in C.C.E., Surat v. Shilpa Copper Wire Industries (Gujarat High Court and Tribunal), Cauvery Stones Impex Pvt. Ltd. v. C.C.E., Salem (Tribunal-Chennai), NBM Industries v. C.C.E., Rajkot (Tribunal-Ahmedabad), Neo Foods Pvt. Ltd. v. C.C.E., Bangalore (Tribunal-Bangalore), and others, which hold that clearances to 100% EOUs constitute exports for the purpose of refund under Rule 5 and that intermediate products cleared to EOUs are treated as exports for the manufacture of exported final products.
On limitation, the appellants argued that Section 11B's limitation does not apply to cash refund claims under Rule 5; they relied on C.C.E., Surat-I v. Swagat Synthetics (Gujarat High Court) and the Tribunal decision in Global Energy Food Indus. v. C.C.E., Ahmedabad.

Department's Arguments (Respondent)

The Departmental Representative argued that Rule 5 of the Cenvat Credit Rules, 2004 provides for cash refund only on account of physical exports, and supplies to 100% EOUs are only "deemed exports" to which Rule 5 does not apply.
She submitted that, under para 8.3 of the Foreign Trade Policy, 2004, deemed exports are eligible only for three benefits — (i) Advance Authorization, (ii) Deemed Export Drawback, and (iii) Exemption from terminal excise duty — and that cash refund of accumulated cenvat credit is not one of the benefits listed; therefore the appellant cannot claim that additional benefit.
The Department also maintained that at least one refund claim (October–December 2005) was time-barred under Section 11B of the Central Excise Act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
C.C.E., Surat v. Shilpa Copper Wire Industries (Hon'ble Gujarat High Court)	Held that clearances to 100% EOUs are to be treated as exports for the purpose of refund under Rule 5.	The court relied on this decision to support the proposition that supplies to 100% EOUs cannot be denied refund under Rule 5 on the ground that they are "deemed exports".
C.C.E., Surat v. Shilpa Copper Wire Industries (Tribunal-Ahmedabad)	Tribunal view that clearances to 100% EOUs qualify for refund under Rule 5; later upheld by Gujarat High Court.	Used as precedent to treat supplies to EOUs as qualifying for Rule 5 refunds; the court noted consistency between Tribunal and High Court on this point.
Cauvery Stones Impex Pvt. Ltd. v. C.C.E., Salem (Tribunal-Chennai)	Held that intermediate products cleared to EOUs for manufacture of exported final products qualify for refund under Rule 5.	The court cited this Tribunal decision as supporting authority that intermediate clearances to EOUs are within Rule 5's ambit.
NBM Industries v. C.C.E., Rajkot (Tribunal-Ahmedabad)	Affirmed that clearances to 100% EOUs are to be treated as export-clearances for refund purposes under Rule 5.	Relied upon to reinforce the view that Rule 5 applies to supplies to EOUs and refunds cannot be denied on "deemed export" ground.
Neo Foods Pvt. Ltd. v. C.C.E., Bangalore (Tribunal-Bangalore)	Supportive Tribunal authority holding that supplies to 100% EOUs fall under the scope of Rule 5 refunds.	Cited as part of a series of Tribunal decisions forming a consistent view in favour of treating EOU clearances as eligible for Rule 5 refunds.
Western Cans P. Ltd. (Tribunal-Mumbai)	Tribunal authority in the same line that Rule 5 refund entitlement extends to clearances to EOUs.	Invoked to demonstrate a line of Tribunal decisions supporting applicability of Rule 5 to EOUs.
C.C.E. v. NBM Industries (2011 TIOL 677-HC-AHM (CX)) (Hon'ble Gujarat High Court)	Reiterated that refund under Rule 5 cannot be denied on the ground that deemed exports are not physical exports.	The court specifically relied on this later Gujarat High Court decision to reaffirm the earlier position that Rule 5 applies to deemed exports to EOUs.
C.C.E., Surat-I v. Swagat Synthetics (Hon'ble Gujarat High Court)	Held that the limitation period under Section 11B is not applicable to cash refund claims under Rule 57F of the Central Excise Rules, 1944 (corresponding to Rule 5 of the Cenvat Credit Rules, 2004).	The bench relied on this authority to conclude that Section 11B's time limit does not apply to refund claims under Rule 5; consequently, a challenged refund claim was held not time-barred.
Global Energy Food Indus. v. C.C.E., Ahmedabad (Tribunal)	Tribunal view that Section 11B limitation is not applicable to refund claims under the rule corresponding to Rule 5.	Used to support the finding that the limitation under Section 11B does not apply to Rule 5 refunds.

Court's Reasoning and Analysis

The court proceeded in a stepwise manner focusing on the three principal contentions raised:

Applicability of Rule 5 to supplies to 100% EOUs:
- The court reviewed a series of judgments of the Gujarat High Court and the Tribunal which consistently held that when finished goods (manufactured using inputs on which cenvat credit was availed) are supplied to 100% EOUs, the supplies must be treated as clearances for export for the limited purpose of refund under Rule 5.
- It emphasized that Rule 5 provides for refund of cenvat credit on goods cleared as intermediate products for the manufacture of final products for export, and that supplies to 100% EOUs are clearances of such intermediate products used in the manufacture of exported final products.
- Relying on the cited authorities, the court held that refund under Rule 5 cannot be denied merely because the supply is a "deemed export" rather than a physical export.
Applicability of Section 11B limitation:
- The court considered the contention that the refund claim for one period was time-barred under Section 11B.
- It relied on the Gujarat High Court decision in C.C.E., Surat-I v. Swagat Synthetics and Tribunal authority (Global Energy Food Indus.) which held that the limitation in Section 11B does not apply to cash refund claims under the rule corresponding to Rule 5 (Rule 57F of the Central Excise Rules, 1944), and applied that principle to hold the refund claim not time-barred.
Effect of Exim Policy (para 8.3) limiting benefits for deemed exports:
- The Department argued para 8.3 of the Exim Policy 2004-2009 restricts deemed export benefits to three enumerated items and therefore cash refund cannot be claimed.
- The court rejected this submission on the basis that the Exim Policy cannot be read into or override the express provisions of the Cenvat Credit Rules. Since Rule 5 expressly provides for cash refund of accumulated cenvat credit in respect of final products cleared for export or intermediate products cleared for export, the policy provision did not preclude application of Rule 5 to EOUs when judicial precedent has interpreted Rule 5 to include such clearances.

In short, the court's analysis was primarily driven by an assessment of the statutory text of Rule 5, read together with a line of judicial authorities that interpret that Rule as permitting refunds for supplies to 100% EOUs, and by precedents holding that Section 11B limitation does not apply to Rule 5 refunds.

Holding and Implications

HOLDING: The court held that the provisions of Rule 5 of the Cenvat Credit Rules, 2004 are applicable to supplies made by a manufacturer without payment of duty to 100% EOUs and that the cash refund of accumulated cenvat credit in respect of such supplies cannot be denied. The court also held that the limitation period under Section 11B is not applicable to refund claims under Rule 5. The impugned order was set aside and the appeals were allowed.

Implications:

Direct effect: The orders of the Assistant Commissioner and Commissioner (Appeals) disallowing the cash refund in respect of supplies to 100% EOUs were set aside and the appeals were allowed, entitling the appellants to the relief claimed in those appeals (subject to any further implementation or quantification not detailed in the provided opinion).
On limitation: The court endorsed the view that Section 11B's limitation does not apply to cash refund claims under Rule 5, thereby negating the time-bar defense for at least the claim specified in the opinion.
Policy vs. Rule: The court made clear that an Exim Policy provision (para 8.3) cannot be read so as to negate or limit an express statutory provision (Rule 5) or its judicial interpretation permitting refunds for clearances to EOUs.
Precedential effect: The decision follows and relies on a series of existing Tribunal and High Court judgments; the opinion itself applied those authorities rather than announcing a novel legal principle. The opinion does not state that it creates a new precedent beyond applying the settled line of decisions described in the analysis.

(Order dictated and pronounced in open court as recorded in the provided opinion.)

Show all summary ...

[Order]. - The appellants are a 100% Export Oriented Unit engaged in the manufacture of Connectors and Connector assembly for export. They availed cenvat credit of central excise duty paid on inputs and service tax paid on services used in or in relation to the manufacture of their final products. The appellants have physical exports out of India and also deemed export i.e. supplies to other 100% EOUs. Since the appellant could not utilize the cenvat credit availed by them for payment of duty on the goods cleared to DTA, as they had no DTA clearances, they applied for cash refund from time to time of the accumulated cenvat credit in terms of provisions of Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-Customs, dated 14-3-2006. The refund claims were being filed on quarterly basis. The dispute is in respect of refund claims for the periods Jan., 2006 to March, 2006, July, 2006 to September, 2006, November, 2005 to December, 2005 and April, 2006 to June, 2006. The refund claims for these periods were disallowed to the extent of the cenvat credit which was in respect of the supplies of the final products to 100% EOU, as according to the department, the supplies to 100% EOUs are only deemed exports in respect of which the provisions of Rule 5 of the Cenvat Credit Rules are not applicable and that the provisions of this Rule are applicable only in respect of physical exports. On this basis, the refund claims of Rs. 2,72,275/-, Rs. 2,47,706/- Rs. 2.34,057/- and Rs. 1,23,846/- in respect of the period from Jan, 2006 to March, 2006, July, 2006 to September, 2006, October, 2005 to December, 2005 and April to June, 2006 respectively were rejected by the Asstt. Commissioner. On appeal to the Commissioner (Appeals), these orders of the original adjudicating authority were upheld. Against this order of the Commissioner (Appeals), these four appeals have been filed.

2. Heard both the sides.

3. Shri Prabhat Kumar, Advocate, ld. Counsel for the appellant, pleaded that the main issue in this case is as to whether the provisions of Rule 5 of the Cenvat Credit Rules, 2004 are applicable in respect of the clearances made by a manufacturer to 100% EOU without payment of duty, that this issue stands decided in favour of the appellant by the judgments of (a) Hon’ble Gujarat High Court in the case of C.C.E., Surat v. Shilpa Copper Wire Industries reported in (Gujarat), (b) Tribunal’ s judgment in the case of C.C.E., Surat v. Shilpa Copper Wire Industries reported in (Tribunal-Ahmd.), which was upheld by the Hon’ble Gujarat High Court vide judgment reported in , (c) Tribunal’s judgment in the case of Cauvery Stones Impex Private Ltd. v. C.C.E., Salem reported in (Tribunal-Chennai) = (Tribunal-Chennai) (d) NBM Industries v. C.C.E., Rajkot reported in (Tribunal-Ahmd.), and (e) Neo Foods Pvt. Ltd. v. C.C.E., Bangalore reported in (Tribunal-Ban.), that in all these judgments, the view of the High Court and the Tribunal was that clearances for 100% EOU, are of intermediate products used in the manufacture of goods cleared for export which are also to be treated as exports, that in view of the settled legal position, on this issue, the impugned order disallowing the cash refund of the accumulated cenvat credit in respect of the supplies to the 100 % EOU is not correct, that in the Appeal No. E/6/2010, the issue of limitation has also been raised, that the limitation period under Section 11B is not applicable to the cash refund under Rule 5 of the Cenvat Credit Rules and in this regard, he relies upon the judgment of the Hon’ble Gujarat High Court in the case of C.C.E., Surat-I v. Swagat Synthetics reported in , wherein it was held that the limitation period prescribed under Section 11B is not applicable for cash refund claim of the accumulated Cenvat Credit under Rule 57F of the Central Excise Rules, 1944, which corresponds to Rule 5 of the present Cenvat Credit Rules, 2004, that same view has been taken by the Tribunal in the case of Global Energy Food Indus. v. C.C.E., Ahmedabad reported in , and that in view of this, the impugned order upholding the denial of refund claims is not correct.

4. Mrs. R. Jagdev, the ld. Senior Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) in it and pleaded that from the language of Rule 5 of the Cenvat Credit Rules, 2004, it is clear that it provides for cash refund of cenvat credit accumulated on account of physical exports, that supplies to 100% EOU are only deemed exports to which the provisions of Rule 5 are not applicable, that as per the provisions of para 8.3 of the Foreign Trade Policy, 2004, a person in respect of deemed export is eligible for only three benefits - advance authorization, deemed export drawback and exemption from terminal excise duty, that in view of the provisions of Exim Policy, the appellant cannot claim the additional benefit of cash refund of the accumulated cenvat credit, which is not mentioned in para 8.3 of the Exim Policy, 2004-2009, that one of the refund claims for the period from October, 2005 to December, 2005 is time barred as the claim filed after expiry of the limitation period under Section 11B and that in view of this, there is no infirmity in the impugned order.

5. I have carefully considered the submissions from both the sides and perused the records. First and the main point of dispute in this case is as to whether the provisions of Rule 5 of the Cenvat Credit Rules, 2004 are applicable in respect of supplies by a manufacturer without payment of duty to 100% EOU. On this point, I find that there are a series of judgments of Hon’ble Gujarat High Court and of the Tribunal, which are in favour of the appellant - (a) Hon’ble Gujarat High Court’s judgment in the case of C.C.E. v. Shilpa Copper Wire Industries reported in (Gujarat) and also and the Tribunal’s judgments in the cases of Western Cans P. Ltd. reported in (Tribunal-Mumbai) and NBM Industries v. C.C.E. reported in (Tribunal-Ahmd.). In all these judgments, it has been held that when the finished goods manufactured out of cenvat credit availed inputs have been supplied to 100% EOUs, refund of accumulated cenvat credit under Rule 5 cannot be denied on the ground that the supplies to 100% EOU are deemed export and not real exports, as Rule 5 of the Cenvat Credit Rules also provides for the refund of cenvat credit on the goods which are cleared as intermediate products for manufacture of final products for export and supplies to 100% EOU have to be treated as clearances for export. Hon’ble Gujarat High Court in another judgment in case of C.C.E. v. NBM Industries reported in 2011 TIOL 677-HC-AHM (CX) = (Guj.) has reiterated its earlier view that refund under Rule 5 of Cenvat Credit Rules, 2004 cannot be denied on the ground that deemed exports are not physical exports. In view of settled legal position on this issue, I hold that the provisions of Rule 5 of the Cenvat Credit Rules would be applicable even in respect of supplies made without payment of duty to 100% EOUs and the cash refund of the accumulated cenvat credit in respect of such supplies cannot be denied.

6. As regards the second issue regarding the refund claim being time barred in terms the limitation period prescribed under Section 11B, raised in respect of the refund claim for the period from November, 2005 to December, 2005, this issue also stands decided in favour of the appellant in the cases of Global Energy Food Indus. v. C.C.E., Ahmedabad (supra) and also the judgment of the Gujarat High Court in the case of C.C.E., Surat-I v. Swagat Synthetics (supra), wherein it has been held that time limit stipulated under Section 11B of the Central Excise Act is not applicable in the case of refund claim under Rule 5 of the Cenvat Credit Rules, 2004.

7. As regards, the third plea of the ld. Departmental Representative that in terms of para 8.3 of the Exim Policy 2004-2009 in respect of deemed exports only three benefits viz. (i) Advance Authorization, (ii) Deemed Export Drawback, and (iii) Exemption from terminal excise duty are admissible and that in view of this, the cash refund of the accumulated cenvat credit would not be admissible. I am of the view that this plea is not correct, as this provision of the Exim Policy cannot be read into the provisions of the Cenvat Credit Rules, when Rule 5 of the Cenvat Credit Rules provides for cash refund of the accumulated cenvat credit in respect of the final products cleared for export under bond or the intermediate product cleared for export and this provision has been interpreted by a series of the judgments of the Tribunal and of the High Court that the same would be applicable in respect of clearance to 100% EOUs also.

8. In view of the above discussion, the impugned order is not correct. The same is set aside. The appeals are allowed.

(Order dictated & pronounced in open court)