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Commissioner of C. Ex., Jalandhar v. JCT Ltd.
Structured Summary of the Legal Opinion
Factual and Procedural Background
The respondents are manufacturers of various fabrics and yarns: unprocessed cotton fabrics, unprocessed man-made fabrics, processed man-made fabrics, processed cotton fabrics, cotton yarn and yarn of man-made fibres. Unprocessed fabrics (cotton or man-made) were fully exempt from duty. Processed fabrics attract basic excise duty (BED) and additional excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (AED (GSI)). Cotton yarn and yarn of man-made fibres attract BED and additional excise duty leviable under the Additional Duties of Excise (Textiles & Textile Articles) Act, 1978 (AED (T&TA)).
The appellant (respondent-manufacturer before the Tribunal) availed and accumulated Cenvat credit of basic excise duty and AED (T&TA) on duty-paid yarn/fibres used in manufacture. Much of the unprocessed fabric production was exported under bond (no duty at yarn stage), while some unprocessed fabric was cleared for home consumption (duty paid at yarn stage). Processed fabrics were cleared on payment of BED and AED(GSI).
Because the appellant alleged inability to utilise accumulated AED (T&TA) credit (mainly because most unprocessed fabric was exported duty-free), on 26-6-2003 they filed a claim for cash refund under Rule 5 of the Cenvat Credit Rules for four quarters (April–June 2002; July–Sept 2002; Oct–Dec 2002; Jan–Mar 2003) totalling Rs. 10,45,988/-. The jurisdictional Assistant Commissioner rejected the refund claim by order dated 15-10-2004 on three grounds: (a) Rule 5 applies only where exported goods are dutiable, so it did not apply to unprocessed exempt fabric; (b) the accumulated credit sought as refund related principally to man-made yarn/fibre used for home-consumption clearances while the exported goods were cotton fabrics; and (c) part of the claim (April–June 2002) was time-barred under Section 11B.
The respondent appealed to the Commissioner (Appeals), who allowed the appeal by order dated 30-6-2005, holding (i) that once inputs (in respect of which Cenvat credit was availed) were received in the factory they were deemed used in manufacture and one-to-one correlation between input and exported finished goods need not be proved for Rule 5; and (ii) that the limitation period under Section 11B should be counted from when it becomes clear that accumulated credit cannot be adjusted, so the claim was not hit by limitation. The Revenue filed the present appeal to the Tribunal against the Commissioner (Appeals) order. The matter was heard and decided by the Tribunal (Order pronounced on 17-6-2013).
Legal Issues Presented
- Whether a claim for cash refund under Rule 5 of the Cenvat Credit Rules is admissible where the exported finished products are unprocessed fabrics that are fully exempt from duty, and the accumulated Cenvat credit sought for refund relates to inputs that may not have been used in the manufacture of those exported goods.
- Whether one-to-one correlation is required between the inputs in respect of which Cenvat credit has accumulated and the final products exported for the purpose of claiming cash refund under Rule 5.
- Whether the limitation period prescribed under Section 11B of the Central Excise Act applies to claims for cash refund of accumulated Cenvat credit under Rule 5 (specifically whether the claim for April–June 2002 is time-barred).
Arguments of the Parties
Revenue's (Department's) Arguments
- Rule 5 of the Cenvat Credit Rules applies only where the finished products exported (made from inputs on which credit was taken) are dutiable; since the exported goods here are unprocessed cotton fabrics that are fully exempt, Rule 5 is inapplicable.
- The claim for the period April–June 2002 is barred by limitation because it was filed after the one-year period under Section 11B from the date of export.
- The accumulated AED (T&TA) credit mainly arose from duty-paid man-made yarn and fibres used to manufacture man-made fabrics cleared for home consumption, whereas the exported goods are unprocessed cotton fabrics. Under Rule 5, refund can be granted only for credit taken in respect of inputs used in manufacture of final products cleared for export under bond/LUT; therefore the respondent is not entitled to the claimed refund.
Respondent's (Manufacturer's) Arguments
- The Commissioner (Appeals) was correct in holding that one-to-one correlation between specific inputs and exported finished goods need not be proved; once it is admitted that inputs in respect of which Cenvat credit was availed were received in the factory, they are deemed to have been used in manufacture of final products (and thus eligible under Rule 5).
- Authoritative decisions (cited: Repro India Ltd. — Bombay High Court; Drish Shoes Ltd. — Himachal Pradesh High Court) have held that the term "excisable goods" in Rule 6(5)/6(6) is wide enough to cover both dutiable and exempted goods exported out of India; accordingly Cenvat credit is available even for exported goods that are exempt, and if such credit cannot be utilized for domestic clearances its cash refund should be admissible under Rule 5.
- The claim for April–June 2002 is not time-barred relying on Tribunal decisions (Tata Motors Ltd. and Hindustan Motors) and High Court/Tribunal authorities (STI Ltd.; Elcomponics) that held the limitation under Section 11B is not applicable to cash refunds of accumulated credit under the earlier Rule 57F(4) and analogous provisions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Repro India Ltd. v. Union of India (Bombay High Court) | Held that the words "excisable goods" in Rule 6(6) (and Rule 6(5)) are wide enough to include both dutiable and exempted goods exported out of India; Cenvat credit can be admissible in respect of inputs used in manufacture of exported goods even if the finished goods are fully exempt. | The Tribunal relied on this High Court view to note that Cenvat credit may be available even for exempt exported goods and that refund would be permissible where accumulated credit cannot be used for domestic clearances. |
| CCE v. Drish Shoes Ltd. (Himachal Pradesh High Court) | Same principle as Repro India: Cenvat credit admissible for inputs used in manufacture of exported goods though the finished goods are fully exempt, since "excisable goods" is wide enough to include exempted goods. | The Tribunal cited this decision in support of the proposition that credit arising from export of exempt goods could be refundable if it cannot be utilized for domestic clearances. |
| Tata Motors Ltd. v. CCE, Jamshedpur (Tribunal - Kolkata) | Held that the limitation period under Section 11B is not applicable for cash refund of accumulated Cenvat credit under Rule 57F(4) of the Central Excise Rules; relied on earlier Tribunal decision in Hindustan Motors. | The Tribunal referred to this case (and its reliance on Hindustan Motors) to support the conclusion that Section 11B limitation does not apply to refund claims under the equivalent provisions and thus the April–June 2002 claim is not time-barred. |
| Hindustan Motors Limited (Tribunal) | Held that the limitation period prescribed under Section 11B is not applicable to claims for cash refund of accumulated credit filed under Rule 57F(4). | The Tribunal relied on Hindustan Motors (directly and through Tata Motors) in reasoning that Section 11B does not apply to the cash refund under Rule 5 analogue and therefore the April–June 2002 claim was not barred by limitation. |
| STI Ltd. v. CCE, Indore (Madhya Pradesh High Court) | Held that strict law of limitation under Section 11B would not apply to a claim for cash refund of accumulated credit made under the notification issued under Rule 57F; the requirement to file within Section 11B is procedural rather than mandatory. Also held that absence of a starting date for limitation effectively means no limitation was prescribed. | The Tribunal cited this High Court authority to support its conclusion that the claim for April–June 2002 is not time-barred and that the limitation provision in the notification is procedural, not mandatory, when the starting date is not prescribed. |
| Elcomponics Sales Pvt. Ltd. (Tribunal) | Referenced as a Tribunal decision taking a similar view regarding refund under Rule 5 (i.e., aligning with the view that limitation under Section 11B does not apply or that refund claims under the rule are permissible in circumstances described). | The Tribunal cited Elcomponics as another supporting authority consistent with the approach that claims under the Rule (or its antecedents) are not strictly governed by Section 11B limitation. |
Court's Reasoning and Analysis
The Tribunal divided its analysis into two principal questions: limitation and admissibility of the cash refund.
Limitation
The Tribunal examined Notification No. 11/2002-C.E. (N.T.), dated 1-3-2002 (issued under Rule 5) which required that applications for cash refund of accumulated credit "must be submitted ... before the expiry of the period specified in Section 11B" along with proof of export. The Tribunal observed:
- Neither the notification nor Section 11B specifies the date from which the limitation period is to be counted for such refund claims. Explanation B to Section 11B defines the "relevant date" in export cases where rebate of excise duty is available on the goods themselves or on excisable materials used in manufacture, but that explanation does not cover claims for cash refund of accumulated Cenvat credit under Rule 5 (because such claims are linked both to accumulation and to inability to utilise the credit for domestic clearances).
- Where the starting point/date for counting limitation is missing, effectively no limitation period is prescribed. The Tribunal relied on earlier authorities (Hindustan Motors, STI Ltd.) that held Section 11B limitation is not applicable to cash refund claims under equivalent provisions (Rule 57F(4)), and that the filing requirement in Section 11B is procedural rather than mandatory in that context.
- On this basis, the Tribunal held that the claim for the period April–June 2002 was not hit by limitation.
Admissibility of Cash Refund under Rule 5
The Tribunal reproduced Rule 5, noting that it permits refund of Cenvat credit where inputs are used in final products cleared for export under bond/LUT and the credit cannot be adjusted for payment of duty on clearances for home consumption.
The Tribunal's interpretative conclusions were:
- Rule 5 allows refund only in respect of inputs that have been used in the manufacture of final products cleared for export under bond or LUT. Thus, if accumulated credit relates to inputs A and B but only the final product made from B is exported, refund under Rule 5 is available only in respect of the credit attributable to input B (the input used for exported product), i.e., credit in respect of inputs used in exported final products that cannot be utilized for domestic duty payment.
- This interpretation distinguishes Rule 5 from Rule 3(4). Under Rule 3(4) (utilization of Cenvat credit), one-to-one correlation between inputs and final products is not required and credit taken in respect of any input can be used for payment of duty on any final product. However, Rule 5's language restricts cash refund to that part of accumulated credit which cannot be utilized for duty payment on domestic clearances and which is in respect of inputs used in exported final products. Therefore, the principle of non-requirement of one-to-one correlation does not apply for refund under Rule 5.
- Additionally, the Tribunal observed that cash refund under Rule 5 is equivalent to input duty rebate under Rule 18 of the Central Excise Rules, 2002 or drawback under the Customs & Central Excise Duties Drawback Rules. Since only one such benefit can be availed by an exporter at a time, cash refund under Rule 5 cannot exceed the excise duty (and service tax on input services) involved on inputs used in the exported final product.
- The Tribunal acknowledged High Court authorities (Repro India; Drish Shoes) which hold that Cenvat credit can be admissible for inputs used in exported goods even if the exported goods are fully exempt, since "excisable goods" includes exempt goods. That principle supports allowing refund where the accumulated credit arises from inputs used in exported exempt goods and that credit cannot be used domestically.
- However, the Tribunal noted a factual dispute not resolved by the Commissioner (Appeals): the Department contended that most of the accumulated AED (T&TA) credit related to duty-paid man-made yarn/fibres used to make man-made fabrics cleared for home consumption, while the exported goods were unprocessed cotton fabrics (with little AED (T&TA) credit attributable). The Tribunal held that this factual issue (whether the accumulated credit sought for refund actually relates to inputs used in exported final products) must be verified and determined by the original adjudicating authority.
Holding and Implications
Holding: The Tribunal set aside the impugned order of the Commissioner (Appeals) and remanded the matter to the original adjudicating authority for a de novo decision in light of the Tribunal's observations.
Implications:
- Direct effect on the parties: The matter returns to the original adjudicating authority for fresh adjudication. The authority must verify whether the accumulated Cenvat credit for which refund is claimed is in respect of inputs used in the manufacture of final products exported under bond/LUT. If the accumulated credit is attributable to inputs not used in the exported goods, refund under Rule 5 would not be admissible for that portion.
- On limitation: The Tribunal held that the claim for April–June 2002 is not time-barred because the limitation reference in the notification to Section 11B lacks a prescribed starting date for counting the period; the Tribunal followed earlier authorities to conclude that Section 11B limitation is not applicable in this context.
- No broader legal precedent was expressly declared as innovating beyond the Tribunal's interpretation: the Tribunal primarily applied and reconciled existing authority and remanded factual verification to the original adjudicating authority. The direct legal consequences are the remand and the guidance on (a) the requirement that refund under Rule 5 must relate to inputs used in exported products and (b) the non-application of strict Section 11B limitation in these circumstances (as reasoned and supported by cited authorities).
Order pronounced on 17-6-2013.
[Order per : Rakesh Kumar, Member (T)]. - The facts leading to filing of this appeal, in brief, are as under:-
1.1 The respondents are manufacturers of unprocessed cotton fabrics, unprocessed man-made fabrics, processed man-made fabrics as well as processed cotton fabrics, cotton yarn and yarn of man-made fibres. Unprocessed fabrics, whether of cotton or of man-made yarn/fibre were exempt from duty. While processed cotton as well as man-made fabrics attract basic excise duty (BED) and also additional excise duty leviable under Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter referred to as “AEDGSI”), cotton yarn as well as yarn of man-made fibres, attract BED and additional excise duty leviable under Additional Duties of Excise (Textiles & Textile Articles) Act, 1978 (hereinafter referred to as “AED (T&TA”)]. For manufacture of cotton fabrics, the appellant manufacture cotton yarn in their factory from cotton and also purchase duty paid cotton yarn from outside in respect of which Cenvat credit of basic excise duty and AED (T&TA) is availed. For manufacture of fabrics of man-made yarn, the appellant purchased duty paid man-made fibres out of which yarn was manufactured for captive use and besides this, they also purchased duty paid yarn from outside. In respect of duty paid man-made fibres or man-made yarn purchased from outside, Cenvat credit of basic excise duty and AED (T&TA) is taken. The yarn of cotton or man-made fibres manufactured in the factory is cleared entirely for captive use in the manufacture of fabrics. When the fabric is cleared in unprocessed form, which is fully exempt from duty, duty is paid by the appellant at the yarn stage and on the yarn, BED and AED (T&TA) is paid. For payment of AED (T&TA) on the yarn, the available AED (T&TA) credit is utilised. However, except for some domestic sales of unprocessed fabrics, the major portion of the unprocessed fabrics were exported under bond and in respect of such clearances, no duty was payable at the yarn stage. As regards, clearances of processed fabrics, while no duty is paid at the yarn stage, at the processed fabric stage, BED and AED (GSI) is paid, as in respect of clearances of processed man-made fabrics, no AED (T&TA) is payable. Thus, AED (T&TA) credit could be used only for payment of this duty at yarn stage, when the fabrics made out of the yarn were cleared in unprocessed form home consumption, which are fully exempt from duty. Since according to the appellant, they were unable to utilise the accumulated Cenvat credit of AED (T&TA) for payment of this duty on domestic clearances, as the bulk of the clearances of unprocessed fabrics were for export, they, on 26-6-2003, filed a claim for cash refund under Rule 5 of the Cenvat Credit Rules, of the accumulated AED (T&TA) credit. The claim was in respect of four quarters - April, 2002, to June, 2002, July, 2002 to September, 2002, October, 2002 to December, 2002, January, 2003 to March, 2003 and the total amount of the claim was Rs. 10,45,988/-.
1.2 This claim was examined by the jurisdictional Asstt. Commissioner, who vide order-in-original dated 15-10-2004 rejected the refund claim on the grounds that -
(a) Rule 5 of Cenvat Credit Rules, is applicable only to those cases where the goods exported are dutiable and as such, Rule 5 is not applicable in this case where unprocessed fabric was unconditionally exempt from duty.
(b) Goods exported are unprocessed cotton fabrics, while the actual accumulation of AED (T & TA) credit whose cash refund is sought is on account of man-made yarn and man-made fibre, the unprocessed fabrics made out of which were cleared for home consumption.
(c) While in terms of the notification issued under Rule 5, the refund claim for cash refund of Cenvat credit is required to be filed within the limitation period prescribed under Section 11B, in this case, the claim has been filed after period of one year from the date of export and hence, the claim for the period April, 2002 to June, 2002 is time-barred.
1.2 The respondent filed an appeal to the Commissioner (Appeals) against the above order of the Assistant Commissioner, who vide order-in-appeal dated 30-6-2005 allowed the appeal holding that -
(a) while from plain reading of Rule 5, it is evident that the benefit of cash refund of Cenvat credit is allowed in respect of those inputs only, which are used in the manufacture of final products cleared for export under bond, once it has been admitted by the Department that the inputs in respect of which Cenvat credit was availed, were received in the factory, the same are deemed to have been used in the manufacture of final products and one to one correlation between input and the finished product cleared for export is not required to be proved; and
(b) while notification issued under Rule 5 provides that the claim is to be filed within the limitation period prescribed under Section 11B, i.e. one year, the relevant date from which the limitation period is to be counted, is not defined for such cases and that the starting point/relevant date for such cases would be when it is determined that the accumulated credit cannot be adjusted for payment of duty on domestic clearances or for any other reasons and accordingly, no part of the claim is hit by limitation.
1.3 Against the above order of the Commissioner (Appeals), the Revenue has filed this appeal.
2. Heard both sides.
3. Ms. Sweta Bector, ld. Departmental Representative assailed the impugned order by reiterating the grounds of appeal in the Revenue’s appeal and emphasized that -
(a) Rule 5 is applicable only in those cases where the finished products exported made out of Cenvat credit availed inputs are dutiable and the credit has accumulated due to exports, while in this case, the goods which were exported are unprocessed fabrics, which are fully exempt from duty and therefore, Rule 5 of the Cenvat Credit Rules, is not applicable.
(b) The claim for the period from April, May and June, 2012 is hit by limitation, as the claim has been filed after expiry of the period of one year from the date of export.
(c) Accumulation of AED (T&TA) credit is mainly on account of procurement of duty paid man-made yarn, and man-made fibres, the unprocessed man-made fabrics made out of which were cleared for home consumption, while the goods exported are unprocessed cotton fabrics and under Rule 5, cash refund of only that accumulated Cenvat credit is permissible which has been taken in respect of inputs used in the manufacture of final products cleared for export under bond, or letter of undertaking.
4. Shri Jay Kumar, Advocate, ld. Counsel for the respondent defended the impugned order by reiterating the findings of the Commissioner (Appeals) and pleaded that Hon’ble Bombay High Court in the case of Repro India Ltd. v. Union of India reported in (Bom.) and Hon’ble Himachal Pradesh High Court in the case of CCE v. Drish Shoes Ltd. reported in (H.P.) has held that in the words ‘excisable goods’ in Rule 6(6) of Cenvat Credit Rules, 2004 are wide enough to cover dutiable as well as exempted goods exported out of India and even in respect of the exempted goods exported out of India, Cenvat credit is available and if the same cannot be utilized for payment of duty on clearance for home consumption, in accordance with the provisions of Rule 5 of the Cenvat Credit Rules, its cash refund would be admissible, that in view of this, the department’s plea that Rule 5 of the Cenvat Credit Rules, is not applicable is totally incorrect, that for the purpose of cash refund under Rule 5 of Cenvat Credit Rules, one-to-one co-relation between the inputs in respect of which Cenvat credit has been taken and which has accumulated and the final product exported is not required to be proved, that the refund claim for the period April, 2002 to June, 2002 is not time-barred in view of the judgment of the Tribunal in the case of Tata Motors Ltd. v. CCE, Jamshedpur reported in (Tribunal-Kolkata), wherein the Tribunal relying upon the earlier decision in the case of Hindustan Motors Limited reported in held that limitation period prescribed under Section 11B of the Central Excise Act is not applicable for cash refund of accumulated Cenvat credit under Rule 57F(4) of the Central Excise Rules, 1944; that in respect of Rule 5 of the Cenvat Credit Rules, 2004, the same view has been taken by Hon’ble Madhya Pradesh High Court in the case of STI Ltd. v. CCE, Indore reported in (M.P.) = (M.P.) and also by the Tribunal in the case of Elcomponics Sales Pvt. Ltd. reported in and that in view of this, there is no infirmity in the impugned order.
5. We have considered the submissions from both the sides and perused the records.
6. Coming to the question of limitation, which is in respect of the claim for April, 2002 to June, 2002 period, Notification No. 11/2002-C.E. (N.T.), dated 1-3-2002 issued under Rule 5 of the Cenvat Credit Rules, 2002 provides that the application in the prescribed form for cash refund of the accumulated credit, which the manufacturer cannot use for payment of duty on the clearances for home consumption, must be submitted to jurisdictional Dy./Asstt. Commissioner “before the expiry of the period, specified in Section 11B of the Central Excise Act, 1944”, along with proof of export and other records. Earlier, when the provisions of cash refund of accumulated credit were in Rule 57F(4) of the Central Excise Rules, 1944, the notification issued under Rule 57F(4) had similar provisions. While the notification issued under Rule 5 of the Cenvat Credit Rules, 2002, simply provides that claim for cash refund under Rule 5 must be filed with the Dy./Asstt. Commissioner before expiry of the period specified in Section 11B, neither in this notification nor in Section 11B, there is any provision as to from which date the limitation period prescribed under Section 11B is to be counted. The relevant date for the purpose of counting limitation period under Section 11B is defined in Explanation B to Section 11B. But it does not cover the claims for cash refund of accumulated credit under Rule 5 of the Cenvat Credit Rules, 2002. While Explanation B(a) provides that “relevant date” in case of goods exported out of India, where a rebate 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, shall be the date on which the ship/aircraft, in which the goods are loaded, leaves India in case of export by sea or by air or the date on which the goods cross the land frontier in case of export by land or the date of despatch of goods by post office concerned to a place outside India in case of export by post, this provision cannot be applied to the case of cash refund of accumulated Cenvat credit under Rule 5, as the claim is linked not only with accumulation of Cenvat credit in respect of the inputs used in the manufacture of goods cleared for export under bond, the same is also linked with the manufacturer’s inability to utilise this credit for payment of duty on the clearances for home consumption. For this reason only, the Tribunal in the case of Hindustan Motors Ltd. (supra) has held that in respect of cash refund of accumulated credit filed under Rule 57F(4), the limitation period prescribed in Section 11B is not applicable. Same view has been taken by the Hon’ble Madhya Pradesh High Court in the case of STI Ltd. (supra), wherein Hon’ble High Court has held that strict law of limitation provided under Section 11B of the Central Excise Act would not apply to a claim for cash refund of accumulated credit made in terms of the notification issued under Rule 57F, as in such a case the requirement of filing of claim within the limitation period provided under Rule 11B is procedural in nature rather than mandatory. Moreover any limitation for filing any claim, appeal, etc., prescribed under any law, has two components - the period of limitation during which the claim, appeal, etc., is to be filed and the date from which the limitation period is to be counted. If the date from which limitation period is to be counted is missing, it would amount to not prescribing any limitation period. In view of this, we hold that the claim for the period from April, 2002 to June, 2002 is not hit by limitation.
7. Coming to the main question of admissibility of cash refund, Rule 5 of the Cenvat Credit Rules is reproduced below :-
Rule 5. Refund of CENVAT credit. - Where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer 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 avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty.”
xxx xxx xxxx xxx
Under Rule 6(6) of Cenvat Credit Rules, 2004 and Rule 6(5) of Cenvat Credit Rules, 2002, the provision of sub-rules (1), (2), (3) & (4) of Rule 6 of Cenvat Credit Rules, 2002/2004 would not be applicable if the “excisable goods removed without payment of duty are the goods cleared/removed for export under bond in terms of the provision of Central Excise Rules, 2002.
8. From the bare perusal of this rule, it is clear that this rule provides for cash refund of accumulated Cenvat credit taken only in respect of those inputs which have been used in the manufacture of final products, which have been cleared for export under bond or under letter of undertaking as the case may be. In other words, if accumulated Cenvat credit is in respect of two inputs A and B and while final product made out of A is cleared for home consumption on payment of duty and the final product made out of input B is cleared for export under bond without payment of duty, for the purpose of cash refund under Rule 5, only the accumulated Cenvat credit in respect of input B, which cannot be utilized for payment of duty on clearances for home consumption, would be eligible for cash refund. In this regard, Rule 5 of Cenvat Credit Rules, 2002/2004 is different from Rule 3(4) ibid which provides that -”Cenvat credit may be utilized for payment of - (a) any duty of excise on any final product; or ………………….” While for the purpose of Rule 3(4) i.e. utilization of Cenvat credit for payment of duty on final product, one to one co-relation between the inputs in respect of which Cenvat credit has been taken and the final product for payment of duty on which the credit is utilized, is not required, and as such, credit taken in respect of any input can be utilized for payment of duty on any final product, in view of the language of Rule 5, the principle of one-to-one co-relationship between input and finished product not being required, will not apply for cash refund of accumulated Cenvat credit. However, the credit in respect of inputs used in the manufacture of final products cleared for export under bond or LUT etc. can be utilized for payment of duty on clearances for home consumption of any final product including those made out of other inputs, as, as per the provisions of Rule 3(4), there is no restriction in this regard and only the credit which cannot be utilized for payment of duty on any final products cleared for home consumption would be eligible for cash refund under Rule 5.
8.1 There is one more reason why the Commissioner (Appeals)’s view on this point is not correct. The cash refund of accumulated Cenvat credit under Rule 5 is equivalent to input duty rebate under Rule 18 of Central Excise Rules, 2002 or excise/service tax duty drawback under Customs & Central Excise Duties Drawback Rules, 1975 of which only one benefit can be availed by a manufacturer exporter at a time. For this reason also, the cash refund under Rule 5 of Cenvat Credit Rules cannot be more than the excise duty involved on inputs and service tax involved on input services used in or in relation to the manufacture of the final product exported.
8.2 The second point of dispute is as to whether a manufacturer can take Cenvat credit in respect of inputs which have been used in the manufacture of finished goods exported out of India, but the finished goods are fully and unconditionally exempt from duty. On this point, the Hon’ble Himachal Pradesh High Court in case of Drish Shoes Ltd. (supra) and Hon’ble Bombay High Court in case of Repro India Ltd. (supra), have held that Cenvat credit would be admissible in respect of inputs used in the manufacture of excisable goods which though fully exempt from duty, have been exported out of India as the term ‘excisable goods’ in Rule 6(5)/6(6) of the Cenvat Credit Rules, 2002/2004 is wide enough to include both dutiable as well as exempted excisable goods and accordingly, if the credit accumulated due to export of such finished products, even if fully exempt from duty, cannot be utilized for payment of duty on domestic clearances, its cash refund would have to be allowed.
9. However, in this case, the Department’s contention is that the accumulated AED (T&TA) credit whose cash refund is sought, has been mainly taken in respect of duty paid man-made yarn and man-made fibres purchased from outside and this yarn/fibre had been used in the manufacture of man-made fabrics which had been cleared for home consumption, while the goods exported are unprocessed cotton fabrics in respect of which there is very little AED (T&TA) credit taken in respect of cotton yarn purchased from outside. This aspect has to be verified and if it is found that the accumulated Cenvat credit whose cash refund is sought under Rule 5, is in respect of inputs which have not been used in the manufacture of final products exported under bond/LUT, the respondent would not be eligible for cash refund. For this purpose, this matter has to be remanded.
10. In view of the above discussion, we set aside the impugned order and remand the matter to the original adjudicating authority for de novo decision keeping in view our observations in this order.
(Order pronounced on 17-6-2013)
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